(Bloomberg) — Peloton Interactive Inc. founder John Foley’s agreement to step down as chief executive officer and stay on as executive chairman doesn’t guarantee an activist investor can push through the sale of the once-hot exercise company.
Peloton is organized so that Foley, his wife and other insiders control the company with about 60% of the voting shares. Blackwells Capital LLC, which has pushed for Foley’s departure and a sale of the company, owns less than 5%.
Even with his voting prowess, Foley did agree Tuesday to cede the CEO job to Barry McCarthy, former chief financial officer at Spotify Technology SA. Peloton was a highflier during the early part of the pandemic when lockdowns made home fitness a necessity for many. But the return of fitness junkies to regular gyms has dented Peloton’s reputation and the stock fell last month below its September 2019 initial public offering price of $29. In recent days, the company’s shares have rebounded to about $38 on reports of a possible sale.
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So far, Foley hasn’t ruled out a transaction, and the New York-based company has said it’s open to exploring options that would create value for Peloton shareholders. Even after Tuesday’s gain, the stock has lost about three-quarters of its value over the past year.
Foley’s power comes from Peloton’s Class B shares, which each get 20 votes, compared with one vote for each Class A share issued to other investors. In addition to Foley and his wife, Peloton co-founder and Chief Product Officer Tom Cortese, President William Lynch, and Chief Legal and Culture Officer Hisao Kushi are among other insiders with significant voting power from Class B shares, according to the company’s proxy statement.
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It’s difficult to determine Foley’s exact voting control because the company says that figures in the proxy include hypothetical voting power of unexercised options. If Foley fully exercised all options, his control would be about 40%, the proxy shows, and by that same measure, all insiders would control 83% of the votes.
Institutional investors have been critical of the dual-class structure because it creates obstacles for other shareholders when they want to push for change at companies. Meta Platforms Inc. is often cited as an example because it’s a challenge for outsiders to force CEO Mark Zuckerberg to address, for example, Facebook’s ties to misinformation and perceived hate speech. Google owner Alphabet Inc. has a similar structure, making it more difficult for average shareholders to force changes at platforms such as YouTube.
With potential suitors such as Amazon.com Inc. and Nike Inc. being mentioned, it’s possible that Foley and Blackwells will ultimately agree to sell Peloton, even if they disagree on other issues, said Tom Lin, a Temple University law professor who wrote the 2022 book “The Capitalist and the Activist: Corporate Social Activism and the New Business of Change.”
“It’s an uphill battle for the activist because of the dual-class shares, unless he agrees to it,” Lin said.
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