Lifeway Foods Inc. NASDAQ (LWAY) Largest Shareholders, Ludmila and Edward Smolyansky, Demanding the Company's Board of Directors and CEO Resign

Rhea-AI Summary

Ludmila and Edward Smolyansky, who own about 29% of Lifeway Foods Inc. (NASDAQ: LWAY), are demanding the resignation of the company's board of directors and CEO Julie Smolyansky. They cite breaches of fiduciary duty, mismanagement, and underperformance. The Smolyanskys are calling for:

1. A new independent board with up to 8 members
2. Immediate termination of Julie Smolyansky's spouse, Jason Burdeen
3. Adoption of an anti-nepotism policy
4. Operational and strategic review of the business

The letter highlights concerns about the company's performance, governance issues, and alleged misuse of company resources. Since May 2024, LWAY's stock has lost over 130% of its value, underperforming recent analyst estimates.

Positive

• Lifeway's shares rose approximately 50% following the Smolyanskys' initial campaign in February 2022
• Recent analyst estimates value LWAY at $20-$24 per share, significantly higher than the current price

Negative

• LWAY stock has lost over 130% of its value since May 10, 2024
• Allegations of breaches of fiduciary duty and mismanagement by current leadership
• Claims of unauthorized acquisitions and misuse of company resources
• Revenue CAGR of only 3.1% since 2016, excluding acquisitions and inflationary price increases
• Inadequate marketing strategy with advertising expense stagnating at 2.5% of revenue from 2020-2023
• High turnover of key personnel, including CFOs, Directors, and other executives

• Specifically Calls for Resignation and Replacement of Lead Director Jason Scher, Directors Pol Sikar, Jody Levy, Dorri McWhorter, Perfecto Sanchez and CEO/Chairperson Julie Smolyansky
• Seeks New Independent Board to be Comprised of up to 8 members, including past Director and Co-Founder Ludmila Smolyansky, as well as an invitation to current and past Director Juan Carlos Dalto, whom the Smolyansky's feel is the only qualified independent Director
• Immediate Termination of Lifeway Foods Corporate Representative and Julie Smolyansky's "Chief of Staff" and Spouse, Jason Burdeen, a former jeweler, whom is believed to be acting as the defacto CEO and General Counsel of Lifeway
• Adoption of an Anti-Nepotism Policy to the Bylaws 
• Calls for Operational and Strategic Review of Business 
• Full Letter and Presentation Available www.lifebacktolifeway.com

CHICAGO, July 18, 2024 /PRNewswire/ -- Ludmila and Edward Smolyansky ("The Smolyanskys"), who beneficially own approximately 29% of Lifeway Foods Inc. ("Lifeway" or the "Company"), today released a letter and presentation detailing their belief about certain directors' history of breaches of fiduciary duty, mismanagement of Company assets, and history of underperformance, while calling for swift and significant changes.

The Smolyanskys' campaign, which began in February 2022, originally called for replacing the Company's CEO and commencing an exploration of the Company's strategic alternatives. Lifeway's shares rose approximately 50% following that disclosure. The Company and the Smolyanskys settled to avoid a public proxy battle. In its letter today, The Smolyansky's stated that the Company "disregarded our July 2022 settlement agreement, and by February 2023 it was apparent it had not taken it seriously and had breached the agreement." Upset that Ludmila refused to "gift" the CEO more than a million shares, the Company then spent over a million dollars trying to silence the Smolyanskys with two lawsuits. Both of which the Company voluntarily dismissed when forced to prove its claims. Before the dismissals, the lawsuits revealed that the CEO's spouse Jason Burdeen, whom the Company designated as its "corporate representative" in one of the lawsuits, has been exercising significant managerial control of the Company's affairs despite not being an officer of the Company, with his only qualification for this role being that he is the spouse of the CEO. A federal judge ruled that in his capacity as the corporate representative of the Company, Mr. Burdeen had submitted multiple affidavits under oath that were not true.

Last spring, Kanen Wealth Management (KWM) became the fourth largest stockholder in Lifeway and launched an activist campaign on June 8, 2023, issuing a scathing letter critical of Julie and her Board. Lifeways' share price again rallied 15% on the news. The Smolyanskys believe the Board was never fully informed of this activist campaign by the CEO and her husband. Director Dorri McWhorter testified to this under oath in December 2023. The Board was also never fully informed in 2021 when Julie sought approval of the acquisition of the California-based Glen Oaks yogurt brand. Ed and Ludmila, Directors at the time, raised concerns about the acquisition, because it diverted away from the focus on Kefir and because they believed Julie was seeking justification for her relocation to California. The board declined to approve the acquisition. Several hours later, Julie signed the purchase agreement anyway. When it found out, the Board did nothing and proceeded to retroactively ratify her signing of the purchase agreement.

Meanwhile, Lifeway Foods' shares have continued to underperform. Since Lifeways recent intraday high of $28.61 recorded on May 10, 2024, its stock price has lost over 130% of its value. Lifeway's stock price is also well below several recent public valuation estimates. In June 2023, KWM estimated the value at about twice sales or about $20 per share, and currently Lake St. and Noble Capital have a combined average target of $24 per share or double today's price. In fact, the share price is below the $13 level following Julie's now deleted Nov. 11, 2016, tweet urging stockholders to "sell" their shares following the Presidential Election.

Lifeway's CEO also has a credibility issue discussing historical results such when describing the Company's sales results, recently touting "17 consecutive quarters of revenue growth" and other "monumental results" mostly driven by volume growth. The reality is very different.

Since 2016, Lifeway has posted a revenue CAGR of approx. 3.1% excluding an unauthorized and ill-advised 2021 acquisition of Glen Oaks Yogurt, as well as heavy post Covid-inflationary related price increases since 2020. The reality is that the rosy picture often painted by Lifeway's management is much farther from the truth. Recently in Q2, Lifeway secured a limited-time rotation of its flagship 32oz. Kefir in Sam's Club outlets through June. Edward Smolyansky stated, "While it would not surprise me that after gloating about this 'monumental' achievement, my sister will demand a raise to her already bloated compensation package. The reality is the Company will likely compensate her spouse to avoid bad optics for herself, a common theme."

However, Lifeways marketing strategy and budget are totally disconnected from reality. It has completely failed to capitalize on the Covid 19 stay at home environment in 2020 and 2021. For example, Lifeways advertising expense as a percentage of revenue stagnated around 2.5% from 2020 through 2023, an unacceptable strategy for any CPG company in America, let alone one on the cusp of becoming the "next Tropicana or Hersheys" as was recently proclaimed by the CEO. Moreover, the Company has never had a formal budget and marketing plan in place, even though in 2019, the Board of Directors adopted a series of resolutions mandating such. Not surprisingly, Lifeways 2024 Annual Meeting Presentation cannot be found anywhere on the web or in its digital archives.

Ludmila Smolyansky stated "After the CEO decided to spend over $55,000 on a personal trip to the Hamptons NY, during a 4^th of July weekend claiming it was a business expense for a purported book signing, influencer breakfast, and a few yoga events, days after Lifeway's 3^rd CFO of 2018 was named, then attempted to conceal it, my mother and I knew we had a larger problem on our hands. That CFO only lasted a few more months at Lifeway."

In its letter, Edward Smolyansky wrote, "Lifeway suffers from a pattern of retrenching and silence when faced with criticism, and mediocre results, often doubling down on past failures. Lifeway's narcissistically driven inability to self-reflect makes it impossible for the brand to achieve its full potential and value in the short and long term, and for Lifeway to move forward, it must get out of its own way. Entrenched leadership must also get out of the way."

Smolyansky added, "The Company's Board has enabled Julie to create a toxic culture of greed and narcissism, quid pro quos, and cronyism. This has emboldened her and her husband to weaponize the Company and consolidate power through deception, intimidation, ruling like tyrants." From 2018-2020, Lifeway wrongfully terminated the Controller, saw its VP of Operations quit, went through two public accounting firms, three different CFO'S in 2018 alone, and had two Directors resign. One director being Danone's appointed seat, and on New Years Eve 2019, the termination of its General Counsel. 

Lifeway Foods Co-Founder Ludmila Smolyansky stated "Of course, no dismantling of all corporate oversight can be complete without Edwards and my terminations in 2022, effectively putting Julie's spouse, Jason Burdeen, in de-facto control over operations, Board activities and acting as Chief Legal Officer. My daughter has publicly demanded I 'gift' her 1 million shares of LWAY recently as well. Unfortunately, we think Julie and Jason's desire for total control and my shares has been a driving reason for using the Company's resources to file multiple lawsuits against us."

Mr. Smolyansky continued, "She has created a cult of personality dictated by the goal: "Brand Julie IS Brand Lifeway". Smolyansky added, "My full presentation will outline the multitude of selfish, self-promoting campaigns or spectacles devised by Julie and her marketing and PR team which diverted millions of dollars of shareholder funds to foster this personal ambition. It is important to also note, a couple of months after our terminations, Julie changed the Kefir labels to include a message signed by her as 'Julie CEO'. These are just the tips of the iceberg." 

"Lifeway's pattern of retrenching, doubling down on past failures, and its ego driven inability to self-reflect make it impossible for the brand to achieve its full potential and value. For Lifeway to move forward, it must get out of its own way. Decades old, entrenched leadership must also get out of the way."

Mr. Smolyansky concluded, "In April, my sister and her husband, desperate, decided to sue me for starting in their words, a 'fake company', then perjuring themselves in the process and after that legal victory, Pure Culture Organics™ is a real brand. That clownish behavior alone will cost shareholders over half a million dollars in the second quarter. I wouldn't trust Julie Inc to run a hot dog stand."

www.purecultureorganics.com

About:

Ludmila Smolyansky, 74, served as a director of the Company from 2002 until May 16, 2023, and unanimously elected as the Chairperson of the Board in November 2002. She has been the operator of several independent delicatessen and gourmet food distributorship businesses, and imported food distributorships, and been a leading force in the health food market for over 40 years. Ludmila Smolyansky and Michael Smolyansky founded Lifeway and she served as the Company's General Manager. In 2010, she retired as a Company employee. She continued to serve the Company as its Chairperson of the Board until August 2022 and served as a consultant to the Company from 2011 until January 2022. Ludmila Smolyansky is the mother of Julie Smolyansky, the Company's the Chairperson, President, Chief Executive Officer and Secretary, and Edward Smolyansky.

Mr. Smolyansky, 44, served as a director of the Company from 2017 until the 2022 annual meeting of shareholders of the Company. Prior to January 2022, he also served as the Company's Chief Operating Officer. He was appointed as Chief Financial and Accounting Officer and Treasurer of the Company in November 2004 and appointed as the Chief Operating Officer and Secretary in 2012. He resigned my titles as Chief Financial Officer on January 1, 2016 and as Chief Accounting Officer on August 8, 2016. He retained his title of Chief Operating Officer when the Board appointed Eric Hanson as Treasurer and as Secretary on October 4, 2019. Mr. Smolyansky also served as Lifeway's Controller from June 2002 until 2004. Mr. Smolyansky received a bachelor's degree in finance from Loyola University of Chicago in December 2001. Mr. Smolyansky is the brother of Chairperson, President, CEO and Secretary, Julie Smolyansky, and the son of Ludmila Smolyansky, one of the Company's directors and director nominees, and one of the Shareholder Nominees.

Mr. Smolyansky has over fifteen years of extensive financial and operations experience in the dairy and consumer packaged goods industries. Under his operational leadership, the Company has successfully integrated several strategic acquisitions and successfully led the development of both manufacturing processes and products. As the former Chief Operating Officer and former Chief Financial Officer of a publicly traded company, he brings experience working with the investor community and financial institutions. In addition, as a member of the Company's founding family, he is a recognized leader in the dairy and probiotic products industry with an in-depth knowledge of manufacturers, distributors and retailers across all the Company's channels of distribution, all of which led to the conclusion that he should serve as a director, in light of the Company's business and structure.

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SOURCE Pure Culture Organics

FAQ

What are the main demands of Lifeway Foods' largest shareholders?

Ludmila and Edward Smolyansky, who own about 29% of Lifeway Foods (NASDAQ: LWAY), are demanding the resignation of the company's board of directors and CEO Julie Smolyansky. They also call for a new independent board, termination of the CEO's spouse, adoption of an anti-nepotism policy, and a comprehensive business review.

How has Lifeway Foods' stock (LWAY) performed recently?

According to the press release, Lifeway Foods' stock (LWAY) has lost over 130% of its value since its intraday high of $28.61 on May 10, 2024. The stock is currently trading well below recent analyst estimates of $20-$24 per share.

What are the main criticisms against Lifeway Foods' current management?

The Smolyanskys allege breaches of fiduciary duty, mismanagement of company assets, underperformance, unauthorized acquisitions, misuse of company resources, inadequate marketing strategies, and creation of a toxic corporate culture. They also claim high turnover of key personnel and poor governance practices.

What is Lifeway Foods' revenue growth rate according to the press release?

The press release states that Lifeway Foods has posted a revenue CAGR of approximately 3.1% since 2016, excluding an unauthorized acquisition and inflationary price increases. This growth rate is described as underwhelming compared to the company's public statements.