Lifeway board adopts shareholder rights plan to reduce likelihood Danone gains control by other means.
November 7, 2024
Lifeway Foods Inc., a leading U.S. supplier of kefir and fermented probiotic products to support the microbiome, announced that its board of directors has rejected an unsolicited proposal made by Danone North America PBC on Sept. 23, 2024, to acquire all the shares of Lifeway that it does not already own for $25.00 per share.
According to an amendment filed with the U.S. Securities & Exchange Commission (SEC) Sept. 23 disclosing the proposal, Danone beneficially owns approximately 23.4% of Lifeway's outstanding common stock.
After careful and thorough consideration, conducted in consultation with its independent financial and legal advisors, the board determined that Danone's proposal substantially undervalues Lifeway and is not in the best interests of the company and its shareholders or other stakeholders, Lifeway said in a Nov. 5 announcement. In addition, in response to Danone's proposal and its substantial ownership position in the Lifeway, the board adopted a limited duration shareholder rights plan, effective immediately.
The rights plan is intended to enable all shareholders to realize the full value of their investment in Lifeway. The rights plan will reduce the likelihood that Danone gains control of Lifeway through open market accumulation or otherwise without paying all shareholders an appropriate control premium or without providing the board sufficient time to make informed judgments and take actions that are in the best interests of all of the company's shareholders and other stakeholders.
The rights plan has similar provisions to those of other plans adopted by publicly held companies in comparable circumstances. Under the rights plan, Lifeway said it will distribute to its shareholders one preferred share purchase right for each outstanding share of Lifeway common stock to shareholders of record at the close of business on Nov. 18, 2024. Initially, these rights will not be exercisable and will trade with, and be represented by, the shares of Lifeway common stock.
Under the rights plan, the rights will become exercisable if an entity, person or group acquires beneficial ownership of 20% or more of the outstanding shares of Lifeway common stock in a transaction not approved by the board or if an entity, person or group that currently beneficially owns 20% or more of the outstanding shares of Lifeway common stock acquires any additional shares.
If the rights become exercisable, each right will entitle its holder (other than the person, entity or group triggering the rights plan, whose rights will become void and will not be exercisable) to purchase, at the then-current exercise price, additional shares of common stock having a then-current market value of twice the exercise price of the right. Certain synthetic interests in securities created by derivative positions are considered to be ownership of the underlying shares of common stock for purposes of the rights plan, according to the announcement.
The rights plan does not deter any offer to acquire the company from any party, nor does it preclude Lifeway's board from considering an offer that is fair and otherwise in the best interests of the company's shareholders.
Unless earlier redeemed, terminated or exchanged pursuant to the rights plan, the rights will expire on Nov. 4, 2025.
The board and management said they are committed to acting in the best interests of all shareholders and ensuring that they are able to realize the full potential value of their investment.
Further details about the rights plan will be contained in a report Lifeway will file with the SEC.
Evercore is serving as a financial advisor to Lifeway, and Sidley Austin LLP is serving as legal counsel.
Lifeway said it remains focused on its strategic plan to bring kefir to more households while also expanding into adjacent categories. The company added that it plans to continue building on its strong momentum, as evidenced by recent financial results for the second quarter ended June 30, 2024, and creating shareholder value.
In addition to its line of drinkable kefir, a probiotic fermented beverage, Lifeway also produces a variety of cheeses and the ProBugs line for kids.
Julie Smolyansky, Lifeway president and chief executive officer, noted in the financial news release in August, "Our incredible momentum continued in the second quarter as we delivered our 19th consecutive quarter of net sales growth and our fifth consecutive quarter breaking the Lifeway record on the topline.”
Net sales for the second quarter were $49.2 million, an increase of 25.3% from the same period in 2023, driven primarily by higher volumes of Lifeway’s branded drinkable kefir. Gross profit as a percentage of net sales was 27.0% for the second quarter, while selling, general and administrative expenses as a percentage of net sales were 15.8%.
The company reported net income of $3.8 million, or 25 cents per diluted common share, for the 2024 second quarter, compared to net income of $3.2 million, or 21 cents per diluted common share, during the same period in 2023.
Smolyansky added, "Our record net sales of $49.2 million were up more than 25% year-over-year, driven by continued volume growth in our flagship Lifeway drinkable kefir. Demand for bioavailable foods like Lifeway Kefir and Farmer Cheese is soaring, and our customers further demonstrated their loyalty to our premium, healthy offerings."
Based in Morton Grove, Ill., Lifeway's fermented dairy products are sold across the U.S., Mexico, Ireland, South Africa and France.
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