Easy Bet On Sale
Lifeway Foods will be sold to Danone over the coming months
This post was written by Dalius from Special Situation Investments. Dalius / SSI is a go-to source for anyone interested in special sits and event-driven investments. I highly recommend checking it out.
SUMMARY THESIS
The long-running, notoriously bizarre founding family feud at Lifeway Foods (LWAY) is finally coming to an end. The events of the last several months, and especially last week, strongly suggest the company is about to be sold to its largest shareholder, Danone, at a material premium to the current prices.
Danone had offered to buy Lifeway at $25/share in September 2024 and then raised the offer to $27/share in November 2024. Both bids were swiftly rejected by Lifeway’s entrenched board and CEO Julie Smolyansky (daughter of the late founder and holder of a 15% stake).
However, this week, Edward and Ludmila Smolyansky (the CEO’s brother and mother, with a combined 27% stake) filed a proxy to nominate a new slate of directors for the June AGM. Together, Edward, Ludmila, and Danone have sufficient voting power to completely overhaul the board. The new board is highly likely to begin serious negotiations with Danone, and the $27/share offer may just be the starting point for discussions.
That’s the gist of the thesis. Danone is still very much interested in acquiring Lifeway—it would be a great fit with its other dairy/probiotic brands. Edward and Ludmila have indicated numerous times that they are open to selling the company. The entrenched board, which thus far has been unwilling to engage with Danone, now has no choice but to be replaced.
And below is a slightly longer version. At the end of this write-up, I have also added more detailed timeline of events leading to the current situation.
LIFEWAY’S FAMILY FEUD
Lifeway Foods is the largest producer of kefir in the US. Kefir is a fermented dairy drink, made by introducing a mix of bacteria and yeast to milk. It is rich in probiotics and supports gut health and digestion. Lifeway was founded by the Smolyansky family in the 80s, and ownership is still largely kept in the family, though not exactly harmoniously. For the past several years, the family has been locked in a messy power struggle, with Ludmila and Edward Smolyansky trying to oust Julie and explore a sale of the company. Edward and Ludmila once worked at Lifeway too, but eventually resigned/were forced out.
The dispute has arisen due to Julie’s managerial misconduct and her tendency to run Lifeway like her own private company—spending corporate cash on private jets, luxury hotels, and personal brand-building, while rarely setting foot in the Illinois headquarters. Instead, she has been living in California. Without a “hands on” CEO, LWAY has faced substantial underinvestment in growth and marketing. Julie has surrounded herself with a passive, compliant board, while her husband (a former jeweler) serves as Lifeway’s chief of staff, despite having no employment contract and collecting a $200k+ salary.
The CEO Julie herself is cashing in millions, and not only from her salary and corporate cash spending. After rejecting Danone’s bids, Julie significantly raised her change-of-control compensation package, handed herself ~$7m in share grants, and secured a $2m retention bonus. Danone has framed these moves as a blatant cash grab ahead of an increasingly inevitable buyout.
Having seen the heightened potentiality of a sale of the company, the board has seemingly greenlit a value-destroying gifting program for the CEO in blatant violation of the Shareholder Agreement.
Another crazy example is her brother’s claim that Julie’s husband requested a “gift” of 1m LWAY shares in exchange for Julie reconsidering the sale:
In addition, her spouse, Mr. Burdeen, has told Edward Smolyansky that the CEO would not allow a sale of the company unless Ludmila Smolyansky transfers more than 1 million shares to her.
All of this is bound to change as Edward and Ludmila are moving to overhaul Lifeway’s board in the upcoming AGM in June. They’ve been pushing to remove Julie and explore a sale already for a while, but a standstill agreement signed in 2022 kept their hands tied for the last couple of years. The standstill has now expired, and this week, the mother/son duo has finally announced their slate of nominees. Together with Danone, Edwin and Ludmila effectively control 50% of the company. The fate of LWAY’s board seems all but decided at the AGM.
New management are likely to move fast with the sale of the company. Edward and Ludmila have been pushing for a strategic review of Lifeway since 2022, when the family feud started. That same year, they launched a proxy fight to replace the board but ultimately a settlement was reached: Lifeway would hire an advisor to explore strategic options, while Edwin and Ludmila would hold off trying to remove the board until the 2025 AGM. Lifeway did hire an advisor in 2023, but then the whole process disappeared into a black hole and nobody has ever heard about it since. Despite the standstill, Edward and Ludmila have always stayed vocal about their original goals: remove the CEO and relaunch a real strategic review. Crain’s Chicago Business outlet from 2022 (2 years before Danone’s bids) noted:
Edward Smolyansky said he and his mother, who together own about 38% of the company, according to an SEC filing, want a CEO who can grow Lifeway “in a very effective and efficient manner” and work on a sale to a strategic partner. Analysts had pointed to Danone, which owned 22% of the company’s stock as of Dec. 31, 2020, as a viable candidate. The packaged-food giant did not return a request for comment.
In a November 2024 letter, Edward and Ludmila urged the board to negotiate with Danone and demanded proof of why the latest $27/share bid was considered too low:
Edward and Ludmila Smolyansky (“Founding Shareholders”), who together exercise voting control with respect to approximately 29.7% of the outstanding shares of common stock of Lifeway Foods, Inc., today called for Lifeway’s board of directors to take several actions, including immediately establishing an independent special committee to evaluate and negotiate a transaction with Danone or other potential buyers.
[…]
Lifeway publicly disclosed in June 2023 that it hired Kroll as its financial advisor to assist the board’s ACG Committee in exploring strategic alternatives. So that shareholders have an opportunity to understand the board’s recent refusal to negotiate with Danone and its claim that “Danone’s revised proposal at $27-per-share substantially undervalues Lifeway,” the Founding Shareholders call for the board to disclose to shareholders any valuation analysis that might have been provided by Kroll to the ACG Committee so it can be compared to Danone’s offers. Edward Smolyansky said, “Neither Ludmila nor I have seen any analysis provided by Kroll, and as significant shareholders we want to understand the basis on which the board is characterizing $27 per share as substantially undervaluing Lifeway.”
And here’s from their latest proxy:
All of this followed the rejection of an unsolicited offer from Danone, its second, to buy the shares of Lifeway it did not own for $27 per share, representing a premium of 72% over the 3-month volume weighted average price. Instead of negotiating better terms with Danone and/or mending fences with its largest single shareholder, we find Lifeway Foods having to contend with litigation stemming from clearly questionable conduct.
DANONE’S OFFER
There’s little doubt that Danone is still interested in acquiring Lifeway. It has been a major shareholder for over 25 years and likely knows the business inside out. Danone has been vocal recently about ramping up M&A activity, particularly in the gut health and microbiome space. Gut-health market is booming, and even soda giants like Pepsi are spending billions on prebiotic drink brands. Kefir market, which is still relatively young and tiny in the US, is also on the radar. In September 2024, Danone launched its first ever kefir products—but only in the UK market so far.
The whole rationale behind Lifeway’s buyout is for Danone to enter the US’ kefir market. Not only enter—LWAY basically holds a monopoly position in US. The exact market share is not disclosed, and I’ve found no fresh industry reports either. However, this 2019 industry data notes that US’ kefir market size was $162m in 2019. That same year, LWAY’s kefir sales were at $72m, suggesting a 44% market share 6 years ago. The share has likely increased a lot since then, as Lifeway’s sales have more than doubled, whereas the market itself was only expected to grow at 5% annual rate. This SA author says Lifeway’s market share is now at 90%, which might be a bit stretched, but should be directionally correct.
The recent lawsuit over the shareholder agreement also reinforces that Danone is still interested in LWAY. After Julie rejected the buyout offers and issued stock grants to herself in December 2024, Danone accused her of violating a 25-year-long shareholder agreement that gave Danone veto right on any share issuance to executives. In December, Danone publicly stated it would take legal action due to Julie’s violation of the shareholder agreement. The lawsuit was officially filed this month. The delay between the warning and the lawsuit suggests that negotiations may have been happening behind the scenes during this period. Either way, Danone remains actively engaged and is turning up the pressure on the current board/CEO. Their objection letter also included various allegations of Julie’s misconduct and shareholder value destruction:
This is not the first occurrence of the board allowing Ms. Smolyansky’s personal interests to trump those of the company and its other shareholders: Lifeway has already wasted millions of dollars of the shareholders’ money to support Ms. Smolyansky in her years-long litigation against her family; to pay Ms. Smolyansky total all-in compensation so outsized that it represented 45% of Lifeway’s total reported net income in 20231 and, per ISS, is 2.75 times the median of peers; and to pay Ms. Smolyansky’s husband a six-figure salary to serve as her chief of staff.
Worth noting that from the financial perspective, Lifeway’s position has only improved since the last Danone’s bid in November. This month, the company reported strong Q4 results and issued a bullish long-term outlook, projecting EBITDA to double between 2024 and 2027.
Danone’s $27/share bid values LWAY at 16x TTM adjusted EBITDA (pre-synergies), which aligns with broader food & beverage industry M&A valuations (see slide 10 of Hexagon Capital’s F&B market monitor). While the offer doesn’t look particularly cheap at a quick glance, it’s likely far from the ceiling of what Danone could be willing to pay to gain a monopoly position of the US kefir market.
The synergies Danone could extract from this acquisition are likely enormous. As a standalone microcap, LWAY has managed to grow at a high-teens rate over the past four years—and this wasn’t just some post-COVID inflation-fueled bump. The growth has stuck, and management is now guiding for EBITDA to double by 2027 (these projections should be taken with a grain of salt, but the key point there’s strong confidence in further growth). I have added Lifeway’s historical financial performance in the next section.
Now, imagine Danone integrating Lifeway’s products into its massive distribution and marketing infrastructure. Revenues have the potential to multiply, and cost synergies could be highly significant. Even something as simple as eliminating Lifeway’s C-suite compensation would immediately increase EBITDA by 25%. At $27 per share, Danone would be getting a bargain, and once negotiations with the new Lifeway management begin, the final offer could end up being meaningfully higher.
BUSINESS BACKGROUND
Lifeway Foods was founded in 1986 by Michael and Ludmila Smolyansky, who began making Kefir in their basement of their home. Kefir had already been popular in Eastern Europe for a long time. The Smolyansky family basically introduced it to the US market. Michael passed away in 2002, with Julie taking over as the CEO and Edward as COO. Ludmila used to be a director of the company until 2023.
Currently, LWAY is the largest manufacturer and marketer of kefir in the US, selling under the Lifeway, Fresh Made, and GlenOaks Farms brands. Kefir accounts for 84% of the company’s total sales, while the remaining 16% comes from other dairy products like cheese, cream, and yogurt.
94% of all products are manufactured at the company-owned facilities.
Lifeway primarily sells through three distribution channels: retail direct (where retailers handle their own distribution), distributors, and direct-to-retail delivery (where Lifeway distributes using its own vehicles). The first two categories make up 98% of total sales.
Only 3% of sales come from outside the US, despite Lifeway frequently discussing international expansion. This could be another area where Danone’s global reach and distribution network would offer significant opportunities for growth.
Historical financials are provided in the table below:
TIMELINE OF THE WHOLE SAGA
February 2022 – Ludmila files a 13D requesting the replacement of the CEO Julie and the launch of the strategic review. Edward had been fired a month prior “for cause” although the cause has never been revealed.
July 2022 – A standstill agreement was reached between Lifeway Foods and activist shareholders Edwin and Ludmila Smolyansky. Under the terms, both parties agreed to support the existing LWAY board until after the 2024 AGM, on the condition that Lifeway hires a financial advisor and begins exploring strategic alternatives.
February 2023 – The activists claimed that the standstill agreement was violated because LWAY had not hired a strategic advisor.
May 2023 – Ludmila resigned from the board and sent a letter to the CEO, criticizing the entrenched board and egregious CEO compensation.
May 2023 – The activists launched a proxy fight, claiming that LWAY violated the standstill agreement by failing to hire a nationally recognized financial advisor.
June 2023 – LWAY disclosed that it actually had hired an advisor and filed a lawsuit against Ludmila and Edward for violating the standstill agreement.
June 2023 – Kanen Wealth Management, which held a 4% stake in LWAY at the time, publicly backed the board slate nominated by Ludmila and Edwin Smolyansky. In a letter addressed to the CEO, Kanen raised concerns over mismanagement and board entrenchment, signaling further shareholder frustration with the current leadership. However, the proxy fight went silent for some reason.
July 2024 – Just a few days after 2024 AGM and the expiration of the 2022 standstill agreement, Ludmila and Edward re-started the activist campaign demanding CEO’s resignation.
August 2024 – Ludmila and Edward filed preliminary proxy statement with stated intentions to replace the board at the next year’s AGM. On the same day Lifeway released highly positive Q2 results. Following these two events LWAY’s stock rerated from $11 to the low $20s over the next few weeks.
September 2024 – Danone submitted its first non-binding proposal to LWAY, offering $25/share in cash, a 15% premium to the pre-announcement price.
November 5 – LWAY rejected the offer as too low, and adopted a poison pill.
November 15 – Danone responded with a revised bid of $27/share.
November 20 – LWAY rejected the updated offer for the same reason. Additionally, the company challenged the validity of the 1999 shareholder agreement with Danone, claiming that Danone engaged in anti-competitive behavior and that the 25-year agreement had been improperly signed from the outset.
November 22 – Edward and Ludmila urged LWAY’s board to establish a special committee to evaluate Danone’s offer.
November 26 – LWAY provided further details on its decision to reject the bid, stating that the offer undervalued the company. A new guidance was mentioned, projecting EBITDA to double from 2024 to 2027. Management noted Danone’s offer valued the company at just 7.5–8.5x 2027E EBITDA.
December 23 – The CEO issued to herself a 283k shares grant, amounting to approximately $7m.
December 23 – The CEO’s change-of-control package was improved and a retention bonus was granted.
December 30 – Danone objected to the 283k grant and the change-of-control changes, arguing that the grant had violated the shareholder agreement. Danone threatened legal action.
March 3, 2025 – Danone ultimately filed a lawsuit.
March 17 – Ludmila and Edward officially launched a proxy campaign to replace the entire slate of LWAY directors.