Might we be nearing the end of one of the industry’s more notable family feuds in recent years?
Lifeway Foods may not be well-known to many outside North America but the US kefir maker has attracted headlines in recent months for the clashes involving the family at the centre of the business.
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Danone has been a long-time minority investor in Lifeway and, this week (23 September), the dairy giant made a move to acquire the business outright.
The French giant’s position on the future of Lifeway has been the subject of speculation for some time and, amid the ongoing rancour at the Illinois-based business, it has decided to act, putting forward “a compelling proposition” to shareholders that “reflects the fundamental potential of the company”.
Danone, which owns just over 23% of Lifeway, has tabled a cash bid worth $25 a share. At that level, it is estimated Danone will have to pay around $283m to buy the business outright.
The offer represents a 59% premium to $15.74, Lifeway’s average share price during the three months before the bid was made. Lifeway’s shares closed at $26.27 yesterday.
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By GlobalDataThe publicly listed Lifeway issued a brief statement, the kind expected in these circumstances. The business said its board and advisors “will carefully review and evaluate the proposal to determine the course of action that it believes is in the best interests of the company and its stakeholders”.
On the board is president and CEO Julie Smolyansky, whose late father Michael set up Lifeway in 1986. In recent months, she has been at loggerheads with her mother Ludmila and brother Edward. Last month, the pair – still shareholders in Lifeway – made a move to unseat Julie as CEO.
In a statement sent to Just Drinks earlier this wee, Edward – who has also set up a rival company, Pure Culture Organics – said it was still too early to “fully assess” Danone’s move but added: “We view it as positive recognition of the work my mother and I have dedicated to Lifeway Foods over the past five years. The offer validates the significant potential for continued growth and innovation within the kefir market.”
Lifeway, which sells cheese, yogurt, butter and sour cream alongside its drinkable kefir, has grown its net sales year-on-year since 2019, reporting a 13% increase last year.
So far this year, the company’s top-line growth has accelerated, with net sales up more than 21% in the first six months of 2024. Notably, Lifeway pointed to volume growth of its namesake kefir, which despite the range of products in the company’s portfolio still accounts for more than 75% of its annual net sales (as per its most recent annual report).
The company’s profit figures have been more mixed in recent years but, after its income from operations and net income grew in 2023 versus 2022, they rose again in the first half of this year.
Danone made some disposals in North America in January amid CEO Antoine de Saint-Affrique’s efforts since he took the helm in 2022 to focus on “priority growth areas” that he says “drive value creation”.
Equity and industry analysts have welcomed Danone’s move for Lifeway. “We think this would be a good deal financially and strategically and we think it could do a lot with the brand in the US,” equity analysts covering Danone wrote in a note to clients this week.
The Barclays analysts cited the comments made by Edward Smolyansky in August when he and Ludmila filed a consent statement to replace the Lifeway board and Julie as chief executive.
“Under my sister Julie’s authority, Lifeway has been on autopilot for far too long, missing critical market opportunities due to a lack of strategic vision. It’s time for a fresh approach to leadership that prioritises growth and innovation over personal agendas,” Edward said at the time.
The Barclays analysts said this week: “We think Danone would be uniquely placed to take the company forward and maximise the potential of the brand.”
At the time of the consent statement being filed, Just Drinks contacted Lifeway for comment. Earlier this summer, the company insisted Ludmila and Edward Smolyansky had during recent litigation between the two sides “demonstrated repeatedly that they do not have Lifeway’s best interests at heart”.
And, in an interview Just Drinks published in July, Julie Smolyansky insisted Lifeway was “firing on all cylinders right now” and was upbeat about the company’s – and category’s – prospects.
Her optimism about the outlook for kefir is shared by Barclays, which believes the product set would become Danone’s “fifth double-digit growth engine” alongside protein-packed dairy (think Oikos and YoPro), products developed for coffee, medical nutrition and the out-of-home market.
“We think Danone could leverage its R&D and science whilst at the same time also significantly expand [Lifeway’s] distribution in the US, possibly by a factor of three or four, based on our analysis. This would potentially give it another powerful growth leg in the US for a relatively modest financial outlay,” the analysts explained.
The US remains the principal market for Lifeway. The company does sell outside the US, including into Mexico, other markets in Latin America, Ireland, France and the Middle East. Earlier this month, it announced an entry into South Africa. However, in 2023, some 98% of its net sales were generated in the US, where it has three of its own manufacturing sites, as well as a co-packer in California.
Richard Wyborn, a partner at UK-based food-and-drinks consultancy Food Strategy Associates, says Danone’s bid for full control of Lifeway “makes a lot of sense”.
“Kefir is obviously also a rapidly growing category … in that space Lifeway has 90% share – which is huge – and there are clearly really strong synergies to be captured throughout the P&L but particularly in terms of sales and distribution,” he told Just Drinks.
“More generally, I’d also expect Danone to look to the potential for the brand across western Europe where its position in yoghurts is extremely strong and where kefir is rapidly emerging.”
There’s still some road to travel before Danone would, after 25 years on the share roster, become Lifeway’s sole owner but, it appears a deal could make sense all-round.
