- 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 4th 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 3rd 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