Top Two Kefir Makers Combine

MORTON GROVE, Ill.--Lifeway Foods Inc. (NASDAQ:LWAY), the leading domestic supplier of kefir beverages, signed an agreement on July 27 to purchase Sauk Centre, Minn.-based Helios Nutrition Ltd. (www.helionutrition.com), the number one kefir suppler in the organic market and number two overall, for a total of $8 million. In addition to the usual cost efficiencies afforded by this type of deal, the acquisition is expected to strengthen Lifeway's presence in the rapidly-growing market for organic dairy products and provide a steady supply of organic milk through Helios' organic dairy subsidiary.

"The major catalyst behind this acquisition is the growing demand for organic dairy products," said Julie Smolyansky, chief executive officer (CEO) of Lifeway Foods (www.lifeway.net), adding that the Organic Trade Association (OTA) reported a 24-percent increase in sales of organic dairy foods to $2.1 billion in 2005 to become the second largest segment in the $14 billion organic foods industry. "We now have the number one share in this market, combining both the top Helios brand and our own very strong organic SKUs."

In summarizing the natural benefits shareholders will gain from the synergies of the deal, Smolansky noted the two companies share the same customers and shelf space--including every Whole Foods, Wild Oats and most other natural foods stores--and they buy the same raw materials and exhibit at the same trade shows. "This will give us better purchasing power, increase our ability to effectively market the category, and alleviate competitive pressures from Helios in the natural and organic area of our business," she said.

George Economy, Helios' founder and CEO, called the signing of the deal an exciting day. "By bringing the Helios brand under Lifeway's leadership, we can coordinate marketing strategies to grow the overall kefir market, one of the fastest growing food industry categories," he said. "Lifeway has an enviable portfolio of products and technologies, which all of us at Helios are proud to become part of. With its dynamic management, a strong financial position, and this acquisition, Lifeway is poised to take the kefir category to new heights."

Under terms of the deal, Lifeway will pay for the transaction with $2.5 million in cash, $4.2 million in a debt note to be paid off quarterly over four years, and $1.3 million worth of Lifeway's treasury shares, which will be equivalent to approximately 101,000 shares. These shares will have several substantial selling restrictions over the course of the next year. Lifeway will retain approximately 190,000 treasury shares.

Lifeway plans to retain all Helios employees and use Helios managers as consultants. For now, the Helios kefir manufacturing will be remain in Sauk Centre, under Lifeway's direction, but it expects to transition manufacturing of the Helios organic kefir line into Lifeway's main Illinois facility by the end of 2006.

"Transitioning manufacturing of Helios products to the Lifeway facility will make it possible to further utilize our excess capacity and low-cost manufacturing process," said Edward Smolyansky, Lifeway's chief financial officer (CFO). "This in turn will maximize our efficiency and lower our overall per-unit cost."