Investor Activist Urges Peloton To Fire CEO for ‘Multiple Leadership Failures,’ Sell Company

Financial Markets Wall Street Peloton IPO, New York, USA - 26 Sep 2019
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Things seem to be getting rapidly worse for Peloton, as activist investor Blackwells Capital is seeking to remove its CEO  “as a result of his multiple leadership failures,” as well as asking the board to  consider selling the company to a strategic acquirer.

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In an open letter on January 24 to Peloton’s board, Blackwells Capital CIO Jason Aintabi wrote it has “grave concerns” about Peloton’s direction and performance.

Aintabi said that while the pandemic offered Peloton a tremendous and unexpected opportunity to accelerate consumer adoption of its category-defining products and drive performance of the business and value for shareholders,  “with the stock now trading below the IPO price, and down more than 80% from its high, it is clear that the company, the executives and the Board have squandered this opportunity.”

“Remarkably, the Company is on worse footing today than it was prior to the pandemic, with high fixed costs, excessive inventory, a listless strategy, dispirited employees and thousands of disgruntled shareholders. And no wonder, the latter, given that Peloton underperformed every other company in the Nasdaq 100 over the last twelve months,” he wrote in the letter, asking the board to fire CEO John Foley immediately.

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According to Blackwells, Foley should be held accountable for his “repeated failures to effectively lead Peloton.”

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The list of failures, according to Blackwells, includes misleading Peloton investors that the company did not need additional capital, just weeks before issuing $1 billion of equity; vacillating on pricing strategy, leading to consumer, market and analyst confusion; upending the product roadmap he himself authored, delaying rollouts and missing deadlines; being initially reluctant to work with the Consumer Product Safety Commission despite selling a product that injured at least 29 children and demonstrating a repeated inability to forecast consumer demand, churn, and product returns — to the point of removing related metrics from the Company’s public guidance.

In addition, Blackwells noted that Peloton committed to a 300,000 square foot, 20-year lease for office space in New York City, “the most expensive office and labor market in the country, seemingly because he enjoys living there (and owns a newly-acquired $55 million vacation home nearby)”; hired his wife as a key executive; and led a company that received the worst possible score for environmental disclosure and governance risk, and nearly the worst possible score for social and human rights disclosure, from a respected proxy advisory and governance firm.

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“All the while, shareholders have lost nearly $40 billion in wealth. Mr. Foley, in contrast, has sold stock regularly and repeatedly, reaping more than $115 million in proceeds,” Aintabi wrote. “The ride for Mr. Foley is over.”

He added that the company has gotten too big, too complex and too damaged for Foley to lead it.

However, Aintabi did note that Peloton has a large and loyal customer base, skilled employees, great technology and content, and a respected brand. As such, it would be extremely attractive to any number of technology, streaming, metaverse and sportswear companies — such as Apple, Disney, Sony and Nike — “who could extend their presence in the home, in health and wellness and on the screen through Peloton.”

“Given the mess that Peloton has become as an independent company, we are convinced that one or more of these strategic acquirors could provide significantly more value, with substantially less risk, than Peloton is likely to generate for its shareholders on its own,” he wrote.

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He added that Blackwells will “not tire from the task of holding Mr. Foley and you responsible for our losses, nor from reminding you of your obligation to maximize value for shareholders.”

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On January 20, following reports earlier in the week, Foley said in a note to employees that the company had experienced leaks of confidential information.

“The information the media has obtained is incomplete, out of context, and not reflective of Peloton’s strategy. It has saddened me to know you read these things without the clarity and context that you deserve. Before I go on, I want all of you to know that we have identified a leaker, and we are moving forward with the appropriate legal action. But moving forward, I want to take a moment to talk about some of the changes with you directly,” Foley wrote in the note posted on the company’s website.

Shares of Peloton closed down 23.9% at $24.22 on January 20, wiping roughly $2.5 billion off of its market value, as GOBankingRates previously reported.

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Foley said that the company is continuing to invest in its growth, but that it also needs to review its cost structure “to ensure we set ourselves up for continued success.”

He added that rumors it was halting all production of bikes and treads are false.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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