News Analysis

Activist investor targets Peloton’s chief executive

by Stephen Conmy on Apr 19, 2022

The activist investor, Blackwells Capital, which has a stake of almost five-per-cent in the digital fitness brand Peloton, is unhappy with the performance of Peloton’s CEO, Barry McCarthy and wants him removed.

What is an activist investor?

Activist investors will typically buy a large amount of stock in a company to exert influence and pressure on the leadership team. (An example would be Elon Musk’s initial purchase of Twitter stock.)

The activist investor will then call for changes to increase the company’s share price or directly benefit the investor.

Activist investors tend to target poorly-managed businesses, inefficient operations, or companies facing some other solvable problem.

Why is this activist investor targeting Peloton?

According to Blackwells Capital, CEO Barry McCarthy has been unable to reform the company’s governance or justify its independence.

The investor has threatened legal action if Peloton does not take a series of steps, including inviting bids for the company.

According to Blackwells, the Peloton board has a fiduciary duty to consider what a strategic buyer would offer. Among the companies tentatively exploring bids for Peloton are Amazon and Nike.

What else does the activist investor say is going wrong at Peloton?

The share price and the value of the company have fallen sharply. During the first year of the pandemic lockdowns, Peloton’s stock surged but collapsed when gyms reopened, and investors curtailed their growth outlook. Then, the company laid off 2,800 workers and abandoned plans to build a $400 million factory in Ohio.

Blackwells says that the stock has continued to fall since McCarthy, formerly CFO at Netflix and Spotify, joined the company as CEO.

“Two months since Peloton hired one of the highest-paid CEOs in all of corporate America, nothing has fundamentally changed,” it said.

Peloton’s market capitalisation has dropped from a peak of almost $50 billion in late 2020 to $7.9 billion today.

Will the activist investor get the result it wants?

This is a good case study of an activist investor in action and shows how an activist investor can exert pressure on a poor-performing company’s board. It remains to be seen what will happen.

If more investors join the call to remove Barry McCarthy, it will make life very difficult for Peleton’s board and CEO.

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