Lifeway Foods plans to pursue a “counterclaim” against Danone after the dairy giant launched a lawsuit claiming a violation of a shareholder agreement.
In reaction to the legal claim, filed in the Cook County Court in Illinois this week, the US-headquartered kefir drinks maker has accused Paris-based Danone of pursing a “hostile takeover” of the business, at a price that “undervalues the company”.
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The latest actions by both companies prolongs a dispute dating back to last year, when Danone instigated a bid in September to acquire all of the shares in Lifeway Foods, having taken around a 23% stake in 1999.
That bid triggered months of wrangling, with Lifeway Foods first rejecting the offer in November claiming it undervalued the company. Danone then put in a higher bid only to be turned down again by the kefir beverages manufacturer.
As Lifeway Foods and Danone battle it out, a family feud continues to fester at the US firm, between its chair and CEO Julie Smolyansky, and her mother and brother, Ludmila and Edward Smolyansky, the company’s largest shareholders.
The latest gripe from Danone centres on a decision by Lifeway Foods board to award Julie Smolyansky with 283,337 shares in the kefir business, which the French giant said violated the 1999 shareholder agreement.
Danone threatened to take legal action in January and has now instigated proceedings.
In a so-called 13D filing with the US Securities and Exchange Commission on 3 March, Danone confirmed the lawsuit against Lifeway Foods’ entire board, including the CEO.
“The lawsuit alleges that the issuer’s directors breached their fiduciary duty of loyalty by choosing to enrich Ms. Smolyansky and entrench themselves as directors by knowingly approving the Smolyansky share issuance in violation of the shareholder agreement,” according to the filing.
“The lawsuit also alleges that the issuer and Ms. Smolyansky committed a breach of contract by violating the shareholder agreement through the Smolyansky share issuance (and, in the alternative, that their conduct was barred by promissory estoppel).”
In retaliation, the kefir maker said in a statement yesterday (4 March) that “Lifeway intends to file a counterclaim against Danone and will aggressively contest Danone’s claims”, accusing the Activia brand owner of “predatory actions”.
That same statement added: “This is the latest aggressive action in Danone’s campaign to execute a hostile takeover of Lifeway at a price that substantially undervalues the company.
“Danone is choosing to exploit its vast corporate power to bully Lifeway’s board and its shareholders into accepting an undervalued transaction rather than negotiating with the company in good faith.
“Lifeway’s board remains committed to maximising the value for all shareholders and will not be pressured into a transaction that fails to do that.”
That commitment was evident in November, when the board said it was “not opposed to the sale of the company at any price”.
However, Lifeway Foods then claimed in January that the 1999 shareholder agreement was “invalid”.
Lifeway Foods repeated that assessment in yesterday’s statement, although approached by Just Food today for comment on the proposed counterclaim, Danone said it had no further comment to make.
“The latest action by Danone follows a history of poor partnership since its investment in the company in 1999,” Lifeway Foods said in the statement.
“Danone has repeatedly leveraged the 1999 stockholders’ agreement, which the company believes is invalid, to benefit itself at the expense of Lifeway shareholders… No amount of corporate bullying will deter Lifeway from remaining steadfast in safeguarding the interests of our shareholders and other stakeholders”.
Danone countered in its legal filing: “The reporting persons [Danone] waive none of their rights under the shareholder agreement, and demand that Lifeway and Ms. Smolyansky comply with their respective longstanding, legally required obligations by rescinding the Smolyansky share issuance and committing to abide by the shareholder agreement.”
It continued: “The reporting persons intend to continue to vigorously pursue the claims set forth in the lawsuit and any related claims, and to continue to assert and enforce their rights under the shareholder agreement.
“The reporting persons may in the future take any actions in connection therewith that they deem appropriate.”
