Peloton/supervoting shares: an asymmetric structure that impedes sale

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Selling Peloton, the maker of stationary bikes beloved of tech bros and suburban homemakers, will be uphill work. Top of the list of impediments is insiders’ stranglehold on voting rights.

Like most of its quoted tech-minded peers, Peloton has a dual-class share structure that expires a decade after it listed — 2029 in this case. Founders and management have just 12 per cent of the company but 75 per cent of the votes. Peloton’s justification — fending off short-term pressures to build long-term value — is backed up by academic research.

Experience in the real world, where dual-class shares took off about a decade ago, suggests the ploy is more about protecting entrenched interests. Look at the kerfuffle at Twitter, which lacks the defence of dual-class shares. Activist Elliott Management and would-be owner Elon Musk thus have more heft to ruffle feathers at the social media company.

Dual-class shares smack of managerial self-interest. Come 2017, nearly half of initial public offerings in the sector featured supervoting structures, according to data compiled by the law firm Cravath. In 2021, just over half of listed entities with dual-class shares had a sunset provision.

Peloton’s own travails underline the point. Shares are one-seventh the 2020 peak and co-founder John Foley has been ejected from the saddle. The company rode the pandemic boom of at-home fitness but failed to anticipate weaker demand when gyms reopened. Investors such as hedge fund Blackwells Capital, which is waging a war against Peloton, want an end to asymmetric votes.

That would unleash buyer interest. Several deep-pocketed companies, such as Nike or Apple, might be interested in Peloton. Despairing shareholders, stuck on a downhill ride to nowhere, would surely welcome the exit.

The trouble with visionary founders is that one man’s vision can look like a blind spot to fellow investors. Barry McCarthy, Peloton’s new chief executive, believes he can create new products and revenue streams. Of course, that will take years — just the way management likes it. There is no painless way off this treadmill for investors.

The Lex team is interested in hearing more from readers. Please tell us what you think of the outlook for Peloton shares in the comments section below.

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