Peloton extends gains after CEO departure

• Peloton Interactive rallied over 30% on Monday

• Stock trades almost 20% higher today

• M&A chatter fuels price gains

• CEO departs under pressure from activist investors

• Stock broke above the downward channel

Shareholders of Peloton Interactive (PTON.US) have reasons to cheer at the beginning of this week. Company's stock rallied over 30% on Monday on takeover rumours. Upward move is being extended today following leadership change and job cuts announcements. However, even after taking those gains into account, stock is still trading around 80% below its all-time highs reached last year. Let's take a closer look at recent events and news around Peloton Interactive. 

Takeover rumours

As was already mentioned in the introduction, Peloton Interactive rallied over 30% on Monday. Stock was boosted by media reports claiming that it is exploring takeover bids. Wall Street Journal reported after the close of the Wall Street session that a plunge in Peloton share price made it an attractive M&A target and that Amazon approached advisors about a potential deal. In other news, Financial Times reported that Nike is also readying a bid for Peloton. Other potential acquirers whose names are making rounds in the markets are Apple and Walt Disney. Peleton's management has been pressured by activist investor Blackwells Capital to sell the company for some time already. Blackwells released a presentation yesterday in which it outlined potential acquirers for Peleton's management to consider.

Potential acquirers to consider by Peleton's management. Source: Blackwells Capital

CEO departure, job cuts

Another batch of news on Peloton arrived ahead of the Wall Street session open today. Company announced that John Foley, Peloton's co-founder and CEO, will step down from CEO role and become an executive chairman. Removal of Foley from CEO role was one of demands outlined by Blackwells Capital in a letter sent to management last month. It was announced that Barry McCarthy, former Chief Financial Officer of Spotify and Netflix, will take over as CEO. Peloton also announced that it will cut 2,800 jobs, or around 20% of all corporate positions, in an attempt to slash costs.

Can a potential deal go through?

There is no simple answer to the question whether potential acquisition of Peloton will go through. A lot will depend on who the acquirer will be. Among the three companies mentioned earlier - Amazon, Apple and Nike - acquisition of Nike seems to have the greatest potential to be green lighted by regulators. Regulators became increasingly cautious when reviewing acquisition proposals made by Big Tech companies. This is due to concerns that financial backing from such behemoths like Apple or Amazon may thwart competition within the industry they plan to enter. Of course, Nike cannot compete financially with either Apple or Amazon therefore a road to potential M&A may be a tough one.

A look at the chart

Shares of Peloton Interactive (PTON.US) rallied after Covid-19 pandemic emerged as introduction of stay-at-home orders was seen as beneficial to at-home fitness equipment demand. Nevertheless, as the pandemic is receding, so is demand for Peloton's products. Share price has been moving lower for over a year now and has lost 80% of its value. However, strong upward move at the beginning of this week allowed the stock to jump above the upper limit of a short-term downward channel, signalling that a larger upward move may be on the cards.

Source: xStation5