Peloton’s tour de trouble takes a turn for the worse

One thing to start: Private equity billionaire and Boston Celtics basketball team co-owner Stephen Pagliuca has revealed that Larry Tanenbaum, chair of the National Basketball Association, is among the list of heavyweight backers of his bid to buy Chelsea Football Club.

Blackwells cranks up the resistance on Peloton’s new CEO

Peloton subscribers have plenty of workout options. But according to activist investor Blackwells Capital, the fitness group’s new chief executive Barry McCarthy has barely broken a sweat.

“Two months since Peloton hired one of the highest-paid CEOs in all of corporate America, nothing has fundamentally changed,” the investor, which holds a less-than-5 per cent stake in Peloton, wrote in a presentation published on Wednesday.

At least one other significant long-term shareholder agrees, telling the FT’s Andrew Edgecliffe-Johnson: “We have some serious doubts around management and governance.”

After calling on Peloton to fire co-founder John Foley in January, Blackwells has turned its energies towards McCarthy, the former finance chief of Netflix and Spotify.

The activist had accused Foley, who has since moved to the role of executive chair, of losing $40bn in shareholders’ wealth due to alleged mismanagement, including misleading investors and hiring his wife in an executive role.

The New York-based investor had also agitated for a sale, as investment bankers speculated that the company could be an attractive target for a number of suitors including Amazon, Apple, Nike and deep-pocketed private equity groups ready to pounce on Peloton’s cascading shares.

McCarthy made it clear he didn’t leave California’s bustling tech scene to become Peloton’s new dealmaker-in-chief, however.

“If I thought it was likely that the business was going to be acquired in the foreseeable future, I can’t imagine it would be a rational act to move across the country,” he told the FT in February.

The tech veteran, whose time as a blunt, numbers-oriented executive at Spotify earned him the nickname “professor Barry”, was brought in to whip the pandemic stock market darling back into shape after it lost more than 70 per cent of its market value in the past year.

“If anyone can turn Peloton into Tesla, it is Barry,” his former colleague, Netflix founder Reed Hastings told the FT. McCarthy has made his name as a no-nonsense fixer: after getting “laughed out of the room” by Blockbuster in 2000, McCarthy went from attempting to sell Netflix to the former home video king to toppling Blockbuster’s entire business model.

He was also the architect behind Spotify’s unconventional direct listing — placating private equity group TPG and other early investors eager for a pay-off, and sidestepping the investment banking fees that accompany a traditional IPO.

Who better to grease Peloton’s rusting wheels?

For starters, according to Blackwells, someone who’s more open to some strategic M&A.

The draft of Blackwells’ presentation reinforces its threat to pursue legal action if Peloton fails to take a series of actions including inviting bids for the company.

The activist shareholder also argues that McCarthy has failed to fix a crucial governance issue that resulted in Foley getting pushed out: the company’s supervoting stock structure, which grants Foley and other insiders 20 times the votes of ordinary stock and effective control over the company.

Foley’s recent $50mn sale of Peloton shares to Michael Dell’s MSD Partners — the investment firm run by former Goldman Sachs banker Gregg Lemkau — created a “misalignment” with the interests of other investors, Blackwells’ presentation argues.

February’s chatter about the likes of Amazon and Nike kicking Peloton’s tyres has gone a little quiet. But a sale still can’t be ruled out if “professor Barry” doesn’t get the seller of tech-enabled stationary bikes moving in a new direction.

Microsoft’s cloudy competition strategy

It has been nearly a quarter-century since Microsoft was America’s mightiest tech group and enemy number-one of global antitrust authorities. After a few decades of stock market stagnation, the company is again testing the will of regulators to challenge corporate power.

It began 2022 with the world’s largest-ever tech deal, agreeing to pay $75bn for video game developer Activision Blizzard in a bold step into the metaverse.

Other areas of Microsoft’s business, such as its Azure cloud service, have had a quieter ascent.

In October 2019, as competition was heating up between Microsoft’s cloud offerings and other so-called hyperscale cloud services run by Amazon Web Services, Google and Alibaba, it made a crucial change to its business terms.

Microsoft suddenly required software customers to pay additional licence fees, even if they already paid the tech company for running the programs in its own data centre. Running Microsoft products such as Office on a rival cloud service required an even steeper fee.

The tech company introduced a number of other changes such as slashing technical support for certain services and packaging a number of services together in a single product, even if many customers only require one.

Frustrated clients aren’t the only ones that have noticed. The changes have triggered a sweeping — yet still informal — antitrust review in the EU as regulators investigate allegations that Microsoft used anti-competitive tactics to incentivise customers to abandon rival cloud platforms, the FT’s Richard Waters revealed.

Brad Smith, Microsoft president, said the company was partly at fault, without pointing to specifics. “While not all of these claims are valid, some of them are, and we’ll absolutely make changes soon to address them.”

Microsoft has until recently escaped the brunt of a backlash against the power and wealth of Big Tech.

But, just as an army of dealmakers chips away at its massive Activision Blizzard acquisition, that’s beginning to change.

Job moves

• General Atlantic has appointed former IHS Markit chair and chief executive Lance Uggla as CEO of BeyondNetZero, the private equity firm’s climate growth equity venture.

• Walmart has poached PayPal finance chief John Rainey as its next CFO.

• Wells Fargo has hired Matt DiFrisco as a managing director focusing on restaurant deals for its consumer and retail investment banking business, per Bloomberg. He was previously a restaurant investment banker at Wedbush Securities.

• Goodwin is opening an office in Munich, which will be chaired by Jan Schinköth, a private equity partner at the firm.

• PR consultancy Headland has hired Andy Payne to co-lead its ESG and sustainability business. He was previously head of corporate affairs for The Crown Estate.

• Latham & Watkins has hired Scott Miller as a private equity and M&A partner in Houston and Susan Yoon Parker as a private equity and banking partner in Boston. They join from Willkie Farr & Gallagher and Choate, Hall & Stewart, respectively.

Smart reads

Dwindling dynasties The generation that built Japan Inc is running out of heirs, as the country’s rapidly shrinking population creates a national succession crisis and ample opportunity for private equity and other investors to swoop in, the FT reports.

Playing recklessly Cryptocurrency groups have capitalised on the influence of Britain’s beloved football clubs. The sport should ditch sponsors that encourage fans to take financial risks, the FT’s Chris Cook writes.

Stacking up Armed with venture capital funding and a promise to revolutionise media, newsletter publishing platform Substack raided some of the industry’s top talent. But copycat rivals and misinformation threaten to derail its progress, the New York Times reports.

News round-up

Barclays in BoE crosshairs over ‘gaming the rules’ with pension deals (FT)

JPMorgan profits hit by Ukraine crisis and mounting US recession fears (FT + Lex)

BlackRock profits climb as inflows prove resilient (FT)

GlaxoSmithKline to buy Sierra Oncology for £1.5bn to boost cancer drug pipeline (FT)

Indian billionaire studies bid for Walgreens’ Boots division (Crain’s Chicago Business)

UK’s Ted Baker says bidder Sycamore to take part in sale process (Reuters)

Jersey freezes $7bn worth of assets linked to Abramovich (FT)

Microsoft’s tactics to win cloud battle lead to new antitrust scrutiny (FT)

Stellantis begins reset of joint venture with China’s Dongfeng (Nikkei Asia)

LBO finance: buyout groups push into lucrative private credit (Lex)