Peloton's CEO spins away into the sunset​

By Jake Rickman​

What do you need to know this week?

Is it possible to cycle off into the sunset on a Peloton bike? The company’s now-former CEO and co-founder John Foley may provide us with an answer.

On Tuesday, the CEO for Peloton announced he was resigning after a tumultuous year for the indoor exercise company that saw the value of its shares fall from an all-time high of $150 per share down to as little as $25.

One of the loudest voices calling for a change in leadership was Chief Investment Officer of Blackwells Capital, Jason Aintabi, who was quoted as saying that under Mr Foley’s leadership, the company had been “horribly mismanaged”.

Along with the leadership shakeup, the company has announced that it is laying off 20% of its staff and reversing its growth strategy to conserve long-term capital.

Blackwells, a hedge fund not afraid to employ an activist strategy, is now pushing to sell the company. There are rumours that potentially interested buyers include Apple, Amazon, and Nike.

Why is this important for your interviews?

We have discussed activist investors’ influence before. This is yet another recent instance where an activist hedge fund has used its position as a minority investor to force change at the board level of an underperforming company. Blackwells owns just under 5% of the company’s shares, yet it was able to put tremendous pressure on the company’s management.

This is also a good opportunity to explore Peloton’s key performance drivers and what went wrong.

The lockdowns at the start of the pandemic caused gyms around the world to shut the doors. Peloton was able to leverage this by selling its brand name stationary cycles to exiled gym-goers looking to stay in shape in their own homes.

But as lockdowns have eased, Peloton has sold far fewer bikes. This has had a direct effect on the company’s revenue. The company has also received negative attention because another one of its products, its Tread+ treadmill, malfunctioned, leading to the death of a child. The company later recalled over 100,000 of its machines.

Consequently, the company is worth merely a fifth of what the market had valued it at a year ago.

How is this topic relevant to law firms?

We have touched on how law firms can advise the management of a company on how to engage with activist hedge funds in the past.

More generally, as a service provider, you will need to understand the key drivers of your clients’ business. Peloton is an instructive case study in how market conditions can seriously impact a company’s performance and lead to senior leadership bowing to shareholder pressure to resign.

Interestingly, some law firms used Peloton to support their lawyers during the pandemic. This included O’Melveny & Myers LLP, the first law firm to partnerwith Peloton to extend its corporate wellness offering to employees.