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Jan 23, 2022

Activist investor pushes Peloton to fire CEO and seek sale

Taking Stock – Netflix and Peloton shares skid


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Peloton Interactive Inc. has received a letter from an activist investor demanding that it fire its chief executive officer and pursue a sale.

Blackwells Capital LLC, which has a stake of less than 5 per cent, has called for the departure of CEO and co-founder John Foley, and wants Peloton to explore a sale of the business. Peloton could be an attractive acquisition target for larger technology or fitness firms, according to an investor letter seen by Bloomberg. 

The shares rose about 2 per cent in New York on Monday morning. 

Peloton’s shares have tumbled more than 80 per cent from their all-time high a year ago, as the gradual easing of pandemic-era restrictions fueled concern that growth of the stay-home fitness company will slow. The stock touched a nearly two-year low last week after CNBC reported that Peloton was temporarily halting production of its bikes and treadmills. 

“With the stock now trading below the IPO price, and down more than 80 per cent from its high, it is clear that the company, the executives and the Board have squandered this opportunity,” Jason Aintabi, chief investment officer at Blackwells, wrote in the letter.

Blackwells cited firms including Apple Inc., Disney, and Nike Inc. as potential buyers, and also accused Peloton of being “reluctant to work with the Consumer Product Safety Commission.”

While Peloton has recently hired McKinsey & Co. to evaluate its business and costs, it’s unclear if a potential sale is on the cards or if Blackwells will succeed in ousting Foley. The former Barnes & Noble Inc. e-commerce executive and cycling enthusiast founded the company after posting a video to Kickstarter in 2013. The CEO and other insiders control over 80 per cent of Peloton’s voting power as of Sept. 30, WSJ said in its report.

The letter from Blackwells decried the CEO’s leadership, citing failed forecasting and inconsistent strategy, and governance problems such as a lack of financial controls. It also said Foley misled investors by saying that the company didn’t need more capital, weeks before a US$1 billion stock offering.

“We believe that no Board exercising reasonable judgment could leave Mr. Foley in charge of Peloton,” Aintabi wrote. “The company has gotten too big, too complex and too damaged for Mr. Foley to lead it. And he should have enough self-awareness and enough self-interest, to resign as a director.”

Peloton, which has slashed its annual forecast by about US$1 billion, last week posted lower-than-expected revenue of US$1.14 billion for the December quarter. Foley said in a statement the company is taking steps to improve its profitability outlook and optimize costs, pledging to provide more information on its cost-cutting plan when Peloton gives its formal earnings report on Feb. 8.  

The company’s public image also took a hit in December, when HBO Max’s “Sex and the City” reboot killed off a Peloton-riding character.

“The ride for Mr. Foley is over,” said Aintabi. “This board must now independently chart a new path for Peloton.”