A multi-billion-dollar activist investment firm is going head-to-head against Peloton (NASDAQ: PTON), the maker of connected fitness equipment whose stock has cratered over the past year. Blackwells Capital, the investor, has bought a significant stake (of less than) 5% in Peloton and is pressuring the company to make substantial changes, including firing its CEO John Foley.

Blackwells published a letter sent to Peloton’s board, urging the company to remove CEO John Foley from his role for “multiple leadership failures.” The activist investor also urged the board to consider selling the company to a strategic acquirer.

• In its letter, Blackwells Capital highlighted “repeated failures” by Peloton CEO John Foley in carrying out his duty. The highlights include allegedly deceiving investors about the company’s capital needs, reluctance to work with regulators after some injuries caused by Peloton’s treadmill, and disbanding the product roadmap he authored, leading to delayed product releases and missed deadlines.

• Blackwells also poked at Foley hiring his wife as a key executive at Peloton and his stock sales of over $100mn while the company lost around $40bn in market value. Indeed, Foley and other Peloton executives sold nearly $500mn of shares before the company’s stock slumped roughly 80%. Among the executives, he sold the lion’s share of $120mn.

Peloton’s stock soared high amid the Covid-19 pandemic, which pushed people towards indoor fitness activities and made Peloton’s sales explode. In figures, the company reported $4bn in revenue in fiscal 2021, compared to $915mn two years earlier.

Peloton’s market value soared to nearly $50bn on January 2021 as the company enjoyed exploding sales. However, as the pandemic’s effects began waning, Peloton cut its annual sales forecast by as much as $1bn. This cut was the catalyst for its market value to slump from nearly $50bn to around $9bn now. Peloton’s current market value is now equal to its value as of its 2019 IPO.

• Blackwells is pressuring Peloton’s board for substantial changes at the ideal time when the company is facing significant challenges. For example, recent reports say Peloton is temporarily stopping manufacturing due to a “significant reduction” in demand and that the company is considering significant layoffs to cut costs.

• However, it’ll be tough to pressure Peloton because CEO John Foley and other executives control over 80% of its voting power, according to a September proxy filing. With such majority voting power concentrated in a few hands, there needs to be significant pressure from other shareholders apart from Blackwells to achieve the type of change the activist investor is calling for.

It may be quite a stretch to call for Foley’s ouster, but Peloton putting itself up for sale seems like something more likely to happen. With its stock at a record low, a cash-rich company interested in fitness and entertainment could swoop in with an offer. Possible suitors Blackwells listed include Apple, Nike, Sony, and Disney.

Out of the four suitors, Apple seems like the ideal option. Peloton and Apple have similar businesses selling high-priced hardware and software to match. Moreover, Apple reported having over $60bn in cash and short-term investments as of September 2021, so it would easily afford a Peloton acquisition.

• Peloton (NASDAQ: PTON) has a current market capitalization of $9bn. Its stock is down 82% over the past year and 21% in 2022.

Photo credit: Stuart Isett for Fortune Brainstorm Health, licensed under CC BY-NC-ND 2.0

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