Peloton stock jumps as Blackwells pushes for CEO ouster, sale

© Reuters. A Peloton exercise bike is seen after the ringing of the opening bell for the company's IPO at the Nasdaq Market site in New York City, New York, U.S., September 26, 2019. REUTERS/Shannon Stapleton

By Svea Herbst-Bayliss

(Reuters) -Peloton Interactive Inc's stock surged on Monday after investment firm Blackwells Capital urged the exercise equipment maker's board to fire its chief executive and put the company up for sale.

The company's shares climbed nearly 10% to close trading at $29.71 after having dropped 3.4% in premarket trading on a day the broader market fell before staging a late-day turnaround.

Peloton (NASDAQ:PTON), which initially became a market darling during the pandemic as people flocked to its bikes, treadmills and popular streamed workouts, is now on worse footing than two years ago, Blackwells said.

It urged the board to remove CEO John Foley immediately, accusing him of creating an atmosphere of high fixed costs and holding on to excessive inventory while also misleading investors about the need to raise capital.

Foley must be held "accountable for his repeated failures" and "should be fired as CEO, immediately," Blackwells founder Jason Aintabi wrote in the letter which was made public on Monday morning.

Peloton did not respond to a Reuters request for comment.

Blackwells is also urging the board to put the company up for sale to a buyer like Walt Disney (NYSE:DIS) Co, Apple Inc (NASDAQ:AAPL), Sony (NYSE:SONY) Group or Nike Inc (NYSE:NKE), Reuters reported on Sunday.

Blackwells criticized Foley for hiring his wife as a key executive and committing to a 300,000-square-foot, 20-year lease for office space in New York, among other things.

While Peloton initially became one of the market's favorite so-called stay-at-home stocks during the pandemic, its fortunes began to dwindle as gyms opened back up and rivals offered other products that appealed to customers.

The stock price has plummeted 83% in the last year and the company is now valued at roughly $8.8 billion compared with $50 billion at the peak of its popularity.

Blackwells' letter followed on the heels of a CNBC report that said Peloton was temporarily halting production of its bikes and treadmills amid lower demand.

Even though Foley, who has led the company for nearly a decade, dismissed the report as false, the news caused the stock price of Peloton to tumble 24% on Thursday, wiping off $2.5 billion from its market value.

While many investors had become frustrated with Peloton as the stock price fell, analysts also noted that the company might be difficult to target because it has two classes of stock, effectively allowing insiders to control it.

"An agitator like Blackwells doesn't have obvious leverage and there is only so much that someone can do from outside the fence line," analysts at Gordon Haskett Research Advisors wrote in a note on Monday titled "Peloton needn't break a sweat."

Blackwells posted a 99.7% return last year, fueled by investments in CyrusOne (NASDAQ:CONE) and Monmouth Real Estate Investment (NYSE:MNR) Corp.