A shareholder of US kefir maker Lifeway Foods has urged the company to sell itself after not seeing the pursuit of previously agreed “strategic alternatives”.
Kanen Wealth Management (KWM), headed by CEO David Kanen, holds more than 600,000 shares in Lifeway, which amounts to around 4.1% of the Illinois-based company.
The shareholder said in a letter to CEO Julie Smolyansky and the board of Lifeway that it intends to vote its shares in support of the recent board slate nominated by Julie’s brother Edward Smolyansky and her mother Ludmilla Smolyansky, who together own 34.9% of the shares.
In March 2022, Edward and Ludmilla moved to remove Julie as the company’s CEO as they wanted the company to pursue “strategic alternatives”.
A few months later, Lifeway revealed that the family feud was over as it had agreed to review strategic alternatives and a shake-up of its board.
However, last month Ludmilla resigned from the board “due to a disagreement with the board about her opinions on the business and management”, according to an 8-K filing Lifeway made with the SEC last month.
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The filing contained a letter in which Ludmilla described Lifeway’s first-quarter results as “disappointing” and argued management’s “explanations were equally, if not more, unacceptable”.
She wrote: “They regurgitated the rationales offered so many other times before to the board and the public through our quarterly filings and therefore were not reassuring that management fully understands the many systemic shortcomings around them.”
Ludmilla also criticised the company’s policy on executive compensation, labelling it “out of control”.
In the filing, Lifeway said it “strongly disagrees with the assertions made in the letter”.
Kanen writes KWM wants to re-support the initial slate from Edward and Ludmilla Smolyansky. Some of the reasons for this include the CEO “mismanaging the business and not acting in the best interest of its shareholders” as well as the company’s profitability not reaching the levels that it should achieve.
Kanen wrote about the lack of profitability: “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.”
He added: “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. We need to be focused on profitability and scaling.
“The company has a significant catalyst with the price of milk (its core input) continuing to come down which will boost gross margins. Sadly, Julie has yet to boost its net profit margin. Even without milk prices coming down, there are other tailwinds we want to highlight which strengthen our case for the company to be better managed.”
The letter goes on to describe a “toxic work environment” at Lifeway and that Julie used company funds for personal purposes. However, Kanen admitted that this could not be proved.
“Based on our due diligence of comparable transactions, a fair value for Lifeway should be between 1.5 to two times revenue. This would yield a value of between $15-20 per share. Keep in mind the company also has real estate worth an estimated $10m,” he stated.
In Lifeway’s latest results, for the quarter ended 31 March 2023, net sales rose 11.2% year-on-year to $37.9m. The kefir company, which also makes cheese and probiotic oat milk, reported net income of $800,000 for the period.
In 2022, net sales reached $141.5m, marking an 18.9% year-on-year jump. However, net income for the year stood at $900,000, down from $3.3m the previous year.
Dairy giant Danone owns a 24% stake in Lifeway.
Just Drinks approached Lifeway to comment on Kanen’s letter. A spokesperson said: “As we look to our upcoming shareholder meeting, we are grateful to have the support of a strong and accomplished board of directors. There is no basis in law or fact for the validity of the alternate slate of nominees. The only valid slate that will be recognsed at the meeting is the one presented by Lifeway.
“Management will not be distracted or deterred from our core mission of expanding access to Lifeway products and creating shareholder value. Leadership is focused on pursuing the best outcomes for the company, our customers and shareholders, keeping in mind that the most rewarding opportunities are available to businesses that grow effectively and efficiently. Lifeway reported record revenue in 2022 and has delivered an impressive 14 straight quarters of year-over-year growth. We are proud of our team’s success in achieving such remarkable results.”