Edward and Ludmila Smolyansky Call for Lifeway Foods (NASDAQ: LWAY) to Establish a Special Committee to Evaluate Danone's Offer

CHICAGO, Nov. 22, 2024 /PRNewswire/ -- 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. (NASDAQ: LWAY), 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.

This follows a proposal by Danone North America PBC to acquire all outstanding shares of Lifeway that Danone does not already own for $27 per share in cash.

Rather than negotiate with Danone in response to its generous proposal, Lifeway quickly rejected it outright. This is consistent with the prior statements by CEO Julie Smolyansky and Jason Burdeen, her spouse who also serves as the CEO's chief of staff, that they would never allow a sale of Lifeway.

As disclosed in Lifeway's SEC filings, rather than explore a value-maximizing transaction, Lifeway is now threatening to file a lawsuit against Danone to invalidate a stockholders agreement that allows Danone to veto any stock grants to the CEO and gives Danone a right of first refusal over certain stock transfers by the other parties to the agreement. Lifeway claims that certain provisions of the stockholders agreement are impermissible under Illinois law, even though Lifeway has previously sought to enforce that very stockholders agreement on multiple occasions.

The Founding Shareholders are calling for Lifeway's board of directors to take the following actions:

1. Establish an Independent Special Committee Authorized to Negotiate a Sale of the Company and Make Its Approval Subject to a Vote by Shareholders

The CEO has communicated that she will not allow a sale of the company, telling others that a sale to Danone would destroy her family's legacy. 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. Julie Smolyansky's theory for why she is owed these shares is described in a court pleading she filed in the Circuit Court of Cook County.

These significant personal conflicts call into question the CEO's ability to fairly evaluate Danone's proposal in accordance with her fiduciary duties. Accordingly, the Founding Shareholders urge the board of directors to take control of the process by establishing an independent special committee, authorized to evaluate and negotiate any change of control transaction, and to retain its own advisors.

1. Preclude Jason Burdeen from Any Involvement in Evaluating or Responding to Danone's Proposal Given His Partiality, as Recently Recognized by a Federal Judge

For years, Lifeway's board has relied on Jason Burdeen to serve as its primary point of contact with its outside advisors, including lawyers and investment bankers. The Founding Shareholders urge the Lifeway board of directors to ensure that Mr. Burdeen is not involved in their evaluation of Danone's proposal, given his spouse's conflicts and his conduct in corporate matters.

Lifeway has filed two lawsuits against the Founding Shareholders in the last two years, each of which Lifeway then dismissed to avoid trial or a ruling on the merits of its baseless claims. In the case Lifeway filed this year in the U.S. District Court for the Northern District of Illinois (24-c-2601), a federal judge made the following statements about Mr. Burdeen after Lifeway had designated him as its official corporate representative to testify on its behalf:

"Mr. Burdeen has little credibility left in front of this Court based upon the multiple declarations he has filed in this case and what he said in his deposition. His story keeps changing. His story under oath keeps changing, and that diminishes his credibility."

Edward Smolyansky commented, "It is shocking that the Board did not terminate Jason Burdeen after his conduct in the lawsuit filed by the company against Ludmila and me, and it is concerning that the Board continues to delegate key responsibilities to Mr. Burdeen. Is the Board unaware of the federal judge's ruling, or does it simply not care? I am not sure which would be worse."

1. Disclose Any Reports by Kroll

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."

1. Agree to Allow the Dissemination of All Deposition Transcripts in the Two Lawsuits Lifeway Filed Against the Founding Shareholders

The Founding Shareholders call for Lifeway to agree to allow them to disseminate unredacted transcripts from the depositions taken in the two cases filed by Lifeway, so that shareholders can evaluate for themselves whether the testimony of the directors indicates that the board is acting with due care and has been adequately informed.

"While the Company's value continues to erode, Julie is busy launching copycat Kefir drinks on other continents that will never see the light of day under her tenure. Lifeway's shareholders deserve transparency, accountability, and leadership that prioritizes their best interests. Lifeway's shareholders deserve better," said Edward Smolyansky. "If the board of directors believes that management has a more compelling strategy for Lifeway and its shareholders, then it should explain that to Lifeway's shareholders in detail. But given Julie's expressly stated personal opposition to any transaction, my view that Julie and Mr. Burdeen exercise significant control over the board, and the repeated stock sales by the members of Lifeway's executive management team over the past year — CEO Julie Smolyansky, CFO Eric Hanson and Senior EVP of Sales Amy Feldman — it would be very hard for me and other Lifeway shareholders to believe that management has any such strategy. Instead, they have touted growth in the company's share price — which has been driven by our efforts to seek change and by the terms of Danone's proposals — and stated that they desire to continue their 'momentum.'"

For more information, visit LifeBackToLifeway.com

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