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Investor Blackwells Urges Peloton to Remove CEO, Explore Sale Citing 'Grave Concerns' Over Direction

11:03AM ET 1/24/2022 MT Newswires
Blackwells Capital on Monday said Peloton Interactive's (PTON) chief executive should be ousted and the exercise equipment maker explore a sale, citing the activist investor's "grave concerns" over the company's direction.

Blackwells, which is "a significant shareholder" of Peloton, claimed in a letter that John Foley has failed to effectively lead the company. The investment management firm said Peloton misled investors regarding its capital needs, could not reliably forecast key metrics and had weak internal controls over financial reporting.

"We believe that no board exercising reasonable judgment could leave Mr. Foley in charge of Peloton," Jason Aintabi, chief investment officer of Blackwells, said in the letter to Peloton's board. "The company has gotten too big, too complex and too damaged for Mr. Foley to lead it."

The shareholder said the company's stock price has dropped below the $29 initial public offering rate, with shares now trading more than 80% below its high, which was reached in December 2020. Blackwells blamed the company's officials and the board for missing out on an opportunity presented by the COVID-19 pandemic, which increased demand for connected fitness bikes and treadmills during lockdowns.

"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," Aintabi said. Peloton didn't immediately reply to an e-mailed request for comment.

The investor urged Peloton's board to explore strategic alternatives, saying the company would be "extremely attractive" to names like Apple (AAPL), Walt Disney (DIS), Sony (SONY) or Nike (NKE). "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," Aintabi said.

Peloton's stock dived 24% on Thursday amid production concerns, though it rebounded Friday. Foley on Thursday denied "rumors" that the company was "halting all production" of the bike and treadmill, but said it was "resetting" production levels. The same day, Peloton released fiscal second-quarter projections that trailed Wall Street's estimates for connected fitness subscriptions and revenue.

Over the weekend, the main character on the ViacomCBS (VIAC) Showtime television show "Billions," Mike Wagner, was depicted as having a heart attack while using a Peloton bike, according to reports. That came more than a month after a "Sex and the City" character was shown dead after using Peloton's fitness machine.

"We get TV shows want to include (Peloton) to get people talking, but to be clear, we did not agree for our brand or IP to be used on (Billions) or provide any equipment," the company said in a tweet. "As the show itself points out, cardio-vascular exercise helps people lead long, happy lives."

Price: 27.56, Change: +0.50, Percent Change: +1.85