Ludmila and Edward Smolyansky, the largest shareholders of US-based kefir producer Lifeway Foods, have called for the company’s CEO, Julie Smolyansky, and some of its directors to resign.
Such a move is said to be “necessary to avoid further underperformance and mismanagement of company assets”, according to a statement from Pure Culture Organics, a Lifeway competitor set up by Edward Smolyansky – and Julie’s brother – this year.
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The statement also said “new leadership can deliver swift and significant changes to shareholders”.
The news marks what looks to be the start of another family feud. Back in March 2022, Ludmila – the mother of Lifeway’s CEO – and Edward Smolyansky called for Julie Smolyansky to step down and for the group to begin pursuing “strategic alternatives”.
At the time of the initial dispute, Ludmila and Edward held a 39.4% stake in Lifeway Foods. Their shares have since shrunk to around 29%.
When the initial demand for Julie Smolyansky to step down was made in March 2022 when Edward and Ludmila Smolyansky were still directors at the company. The issue was said to have been resolved the following August, as Lifeway agreed to review strategic alternatives, as well as find a financial advisor and new replacements for its board.
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By GlobalDataAccording to Edward Smolyansky however, these steps were not followed through. He said: “Lifeway did not make a good faith effort to honour its obligations under our settlement agreement, and by February 2023 it was apparent that it had breached the agreement.
“In light of the board’s failures, we believe that even 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.”
One of the many accusations made against Julie Smolyansky in the latest statement includes that she had asked Ludmila to gift her $1m of Lifeway shares.
The company has also allegedly spent over $1m in lawsuits against Edward and Ludmila Smolyansky. In April, Lifeway filed a claim against company Pure Culture Organics, claiming it had stolen proprietary information to set up the business. Lifeway ended the lawsuit in June.
Edward and Ludmila Smolyansky left Lifeway Foods last year, with Edward Smolyansky setting up Pure Culture Organics, which produces a range of plain and flavoured low-fat and whole fat drinkable kefirs for the US market.
Pure Culture Organics’ latest statement also suggests Julie Smolyansky’s husband, Jason Burdeen had “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”, with a federal judge having ruled that Burdeen had made several false affidavits during the lawsuits.
The latest move from the Smolyanskys follows on from a letter sent by Lifeway’s fourth largest shareholder Kanen Wealth Management in June 2023, which heavily criticised Lifeway’s CEO and board. In the letter to Lifeways CEO and directors, President and CEO of the investment firm David Kanen said: “We believe the board is misaligned with shareholders and is unwilling to stand-up to the current CEO and address the ongoing profitability issues.”
He added: “We will be holding all of you accountable, to ensure shareholders are prioritised.”
According to Pure Culture Organics, Lifeway has had a revenue CAGR of around 3.2% since 2016, “excluding an unauthorised and ill-advised” purchase of Glen Oaks Yogurt in 2021, plus “heavy post-Covid inflationary related price increases since 2020”.
Speaking to Just Drinks earlier this month, Julie Smolyanksy stressed the company had seen “18 consecutive quarters of year-over-year net revenue growth and [that] demonstrates our really strong and consistent market performance.
“The last four quarters alone have been record-breaking in revenue. Our gross profit margin is up dramatically. Our income has tripled from the first quarter of 2023. We are the 95% or so category leader of kefir. We’ve created this category.”
When asked for an update on Lifeway’s planned review of “strategic alternatives” earlier this month, the CEO said: “We’ve done what we needed to do and what the board needed to do and the advisors have gone through their process. We’re continuing to grow the business. You’d have to check the public filings but the requirements have been met and fulfilled.”
Commenting on her and her son’s latest call for action at Lifeway, Ludmila Smolyansky said: “Lifeway’s pattern of retrenching, doubling down on past failures, and management’s 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.”
Just Drinks has asked Lifeway to comment on the statement from Ludmila and Edward Smolyansky.
