October 7, 2022

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Peloton Deal May Pose Regulatory ‘Headache’ for a Tech Giant

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(Bloomberg) — Peloton Interactive Inc. — the early pandemic home-fitness darling that’s become a potential takeover target following a sharp plunge in its stock price — could find a challenging climate if it opts for a deal with a big-technology firm.

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One key consideration is regulatory scrutiny. There’s a chill against large transactions at the moment in Washington, where technology companies are being probed by regulators for their reach and influence and the Federal Trade Commission recently sued to block an acquisition by Nvidia Corp.

“The deal better be worth the headache for the company because they’re going to be scrutinized on whatever they buy,” said Anurag Rana, a senior analyst at Bloomberg Intelligence, in an interview Sunday.

Peloton is evaluating interest from potential suitors and is working with an adviser to explore options, according to people familiar with the matter who asked not to be identified because discussions are private. The takeover interest in the New York-based maker of exercise bikes and treadmills is exploratory and may not lead to a transaction, they said.

The companies said to be taking a look at Peloton — whether for an acquisition, an investor or some other kind of tie-up — include some of the biggest names in technology and fitness. Amazon.com Inc. has spoken with advisers about a potential deal, the Wall Street Journal reported Friday. Analysts have also speculated that Apple Inc. could lurk as a potential buyer. Nike Inc. is also considering a separate bid for Peloton, according to the Financial Times.

Peloton didn’t immediately respond to an email seeking comment. Amazon, Nike and Apple declined to comment.

Share Decline

Peloton’s shares have dropped more than 80{6e6db3521f07ebedc52abc8c7bfbbc5a7fcd8802a2a8a5c8cfaa0d09c6ebceb7} from their January 2021 high amid a slowdown following the loosening of pandemic restrictions. It’s a very different landscape than the early days of the pandemic, when demand for the company’s products exceeded supply.

The company is currently valued at just over $8 billion, based on Friday’s official market close of $24.60 — below its September 2019 initial public offering price of $29. The shares surged as much as 43{6e6db3521f07ebedc52abc8c7bfbbc5a7fcd8802a2a8a5c8cfaa0d09c6ebceb7} in extended trading Friday after the Journal report.

Activist investor Blackwells Capital LLC last month issued a letter demanding the company fire co-founder and Chief Executive Officer John Foley and pursue a sale. Blackwells said in the letter that potential buyers could include Apple, Nike and Walt Disney Co.

‘Distraction’ for Amazon

“Although Peloton’s star was propelled during Covid, it’s become increasingly clear it’s a much smaller (still impressive) business than prior perception,” BMO Capital Markets analysts Simeon Siegel and Daniel Stroller wrote in a note Sunday. “One has to ask whether the brand is simply too small to make a difference to the world’s largest companies.”

The analysts questioned if Peloton’s roughly 2.8 million subscribers overlapped with those of Nike, Amazon or Apple. “If the world’s strongest companies weren’t interested when Peloton was expected to grow 15 to 100 million subscribers, are they looking for a fixer-upper now that engagement/demand has faltered?” they also said.

In a short note Friday, Rana and Bloomberg Intelligence senior analyst Poonam Goyal said Peloton would “only serve as a distraction” for Amazon — while offering few synergies for a company focused on the cloud and logistics. An athleisure company, they said, “would be a better fit.”

“Active-wear brands already embody the workout scene through runs etc.,” Goyal wrote in an email Sunday. “Having a workout machine that can integrate their ambassadors and items could help them establish themselves further in the active community. Lululemon bought Mirror for the same reason.”

While Peloton is already among the at-home fitness leaders, greater product variety could help it recoup demand, said Amine Bensaid, also an analyst at Bloomberg Intelligence, in an email Sunday.

Read more: Reasons Apple is unlikely to buy Peloton: Power On

Apple and Peloton may seem like a good match because Apple is already pushing further into fitness, but even with that there are potential drawbacks. Peloton’s large, expensive hardware isn’t in keeping with Apple’s traditional product-turnover strategy, and it has its own fitness software.

Even so, analyst Dan Ives of Wedbush Securities said Apple may have strategic reasons to consider a pursuit of Peloton.

“Apple may be forced into this deal if Amazon, Nike, or potentially Disney aggressively goes after Peloton in a defensive blocking strategic move,” Ives wrote in a note Sunday. “On the offensive front, Apple through its Fitness+ subscription service and Apple Watch strategy would be able to leverage the Peloton services and flywheel to significantly bulk up its health-care initiatives, which have been a key strategic linchpin.”

(Updates with analyst comment in 10th paragraph)

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