The family feud over who should lead Illinois-based kefir maker Lifeway Foods and how it should be run has heated up, as key shareholders of the publicly listed business have again called on the CEO and other top executives to resign.
Founded by Michael Smolyansky in the 1980s, Lifeway Foods has been run by his daughter Julie as CEO since Michael’s death in 2002, while Ludmila (Julie’s mother) remained on the board until summer 2022. Julie’s brother Edward was COO until early 2022, when he was terminated with cause.
The first public signs that the Smolyansky family members were not on the same page emerged in February 2022 in a form filed with the SEC in which Ludmila and Edward argued that Julie should be replaced as CEO, and that the board should explore “strategic alternatives.”
The independent directors of the Lifeway board responded with a statement saying that they fully supported Julie Smolyansky, who stressed that her “loyalty lies with our company, our brand, our customers, our employees, our shareholders, and my father’s legacy.”
By late July 2022, things appeared to have calmed down, with an agreement between the company and Edward and Ludmila to keep Julie in place as CEO but committing the board to explore “strategic alternatives” for the company.
‘As investors, it is painful to watch a strong brand be mishandled’
In June 2023, however, David Kanen, president and CEO at key shareholder and activist investor Kanen Wealth Management, wrote an open letter to Julie Smolyansky and Lifeway directors accusing them of “mismanaging the business and not acting in the best interest of its shareholders.”
He added: “The company’s stock is undervalued, but cannot realize a greater value with the current CEO and board. This has been proven by five years of revenue growth with minimal to no profitability and a stock price that has never reached above $8 in the last five years.
“We believe Lifeway’s core Kefir brand can grow revenue significantly in the hands of a skilled management team and CEO who actually shows up to work daily. As investors, it is painful to watch a strong brand be mishandled, and essentially be the executive team’s personal bank account in our opinion.”
In April 2024, the feud ratcheted up further as Lifeway Foods filed a lawsuit* vs Edward and Ludmilla Smolyansky accusing them of stealing trade secrets to manufacture a directly competing product (competing kefir brand Pure Culture Organics), which debuted at trade show Expo West in March. The parties agreed to voluntarily dismiss the case in June.
‘Underperformance and mismanagement of company assets’
In a press release issued this week, Ludmila and Edward Smolyansky, who beneficially own approximately 29% of the outstanding common stock, called on Julie Smolyanksy and other executives (Pol Sikar, Jody Levy, Dorri McWhorter, and Perfecto Sanchez) to resign “to avoid further underperformance and mismanagement of company assets.”
They added: “Lifeway did not make a good faith effort to honor its obligations under our settlement agreement [to explore strategic alternatives for the company], and by February 2023 it was apparent that it had breached the agreement. In light of the board’s failures, we believe that significant changes are needed, and are calling for resignations of each of the board’s directors, other than Juan Carlos Dalto, who we believe is the only qualified independent director.”
According to the release: “After Ludmila Smolyansky refused to agree to Julie Smolyansky’s demand for a ‘gift’ of one million Lifeway shares, the company spent over one million dollars trying to silence the Smolyanskys with two lawsuits, both of which the company voluntarily dismissed when forced to prove its claims.
“The lawsuits revealed that the CEO’s spouse, Jason Burdeen, has been exercising significant managerial control of the company’s affairs despite not being an officer of the company, with his only apparent qualification being his relationship with the CEO.”
A Lifeway Foods spokesperson told AgFunderNews: “Edward and Ludmila Smolyansky’s conduct in recent litigation demonstrated repeatedly that they do not have Lifeway’s best interests at heart.
”Ludmila testified that Pure Culture Organics was and always has been a “joke” company. Creating a fake organization and purporting to use “trade secrets” from Lifeway is yet another example of Edward’s behavior that runs counter to Lifeway’s interests. Edward has sent vitriolic and threatening communications to Lifeway employees and used false names to hide his identity when posting on financial message boards disparaging Lifeway.
“Our CEO Julie Smolyansky was recently granted an Order of Protection against Edward based on his actions. Edward thus appears to be engaged in a personal vendetta with no regard for potential negative impacts on Lifeway’s stakeholders.”
He added: “The facts are clear. Lifeway is performing at historic, record-breaking levels, and we are proud of the outstanding work and contributions from the entire team. Since Edward was removed from his position as Treasurer and Secretary on October 4th, 2019, the company has successfully grown revenues from $94m in 2019 to $160m in 2023. Lifeway’s closing share price on October 4, 2019 was $2.08; Lifeway’s closing share price on July 17, 2024 was $13.03.”
Who owns Lifeway Foods?
Ludmila and Edward own 29% of the company’s stock, with other key shareholders including dairy giant Danone and Julie Smolyansky.
Net sales rose 17.8% to $44.6 million in the quarter ended March 31, 2024, primarily driven by higher volumes of Lifeway’s branded drinkable kefir, which accounts for 82% of revenues. Net profit was $2.4 million vs $0.8 million during the same period in 2023. In the full year 2023, net sales rose 13.1% to $160.1 million, with net profits of $11.4 million.
Read more about Lifeway’s recent performance HERE.
*The case is Lifeway Foods vs Ludmila and Edward Smolyansky, doing business as Pure Culture Organics. 1:24-cv-02601 filed in the Northern District of Illinois in April 2024.
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