Blackwells Sends Letter to Peloton Board of Directors, Calling for New Leadership and Initiation of Strategic Alternatives

Repeated failures by current CEO John Foley prove he is ill-suited to lead Company and must be removed

Board should begin sale process to fully maximize value of Peloton’s brand, team, customer base and technology

Blackwells Capital LLC (together with its affiliates “Blackwells”), an alternative investment management firm that is a significant shareholder of Peloton Interactive, Inc. (“Peloton” or the “Company”) (NASDAQ: PTON), today sent a letter to the Board of Directors of Peloton. In it, Blackwells presents its serious concerns about the direction and performance of the Company and calls on the Board to remove current CEO John Foley, as a result of his multiple leadership failures. Blackwells also believes that the Board must consider selling the Company to a strategic acquiror.

The text of the letter follows:

January 24, 2022

The Board of Directors

Peloton Interactive, Inc.

441 Ninth Avenue, 6th Floor

New York, NY 10001

Dear Peloton Directors:

I am writing on behalf of Blackwells Capital LLC, an investment manager that is a significant shareholder of Peloton Interactive, Inc. (“Peloton” or the “Company”), to express our grave concerns about the performance and direction of the Company, and the ongoing failures of its leadership team.

We believe the pandemic offered Peloton a tremendous and unexpected opportunity to accelerate consumer adoption of its category-defining products and drive performance of the business and value for shareholders. With the stock now trading below the IPO price, and down more than 80% from its high, it is clear that the Company, the executives and the Board have squandered this opportunity.

Remarkably, the Company is on worse footing today than it was prior to the pandemic, with high fixed costs, excessive inventory, a listless strategy, dispirited employees and thousands of disgruntled shareholders. And no wonder, the latter, given that Peloton underperformed every other company in the Nasdaq 100 over the last twelve months.

Mr. Foley Should Be Fired as CEO, Immediately

Mr. Foley must be held accountable for his repeated failures to effectively lead Peloton, which include:

• Misleading Peloton investors that the Company did not need additional capital, just weeks before issuing $1 billion of equity;
• Vacillating on pricing strategy, leading to consumer, market and analyst confusion;
• Upending the product roadmap he himself authored, delaying rollouts and missing deadlines;
• Being initially reluctant to work with the Consumer Product Safety Commission despite selling a product that injured at least 29 children;
• Demonstrating a repeated inability to forecast consumer demand, churn, and product returns – to the point of removing related metrics from the Company’s public guidance;
• Committing to a 300,000 square foot, 20-year lease for office space in New York City, the most expensive office and labor market in the country, seemingly because he enjoys living there (and owns a newly-acquired $55 million vacation home nearby);
• Making significant capital investments to expand manufacturing capability only to then shut down manufacturing for multiple products for many months;
• Failing to ensure that the Company had effective internal controls over financial reporting, leading to a warning from his auditors;
• Hiring his wife as a key executive; and
• Leading a company that received the worst possible score for environmental disclosure and governance risk, and nearly the worst possible score for social and human rights disclosure, from a respected proxy advisory and governance firm.

All the while, shareholders have lost nearly $40 billion in wealth. Mr. Foley, in contrast, has sold stock regularly and repeatedly, reaping more than $115 million in proceeds.

We believe that no Board exercising reasonable judgment could leave Mr. Foley in charge of Peloton. The Company has gotten too big, too complex and too damaged for Mr. Foley to lead it. And he should have enough self-awareness and enough self-interest, to resign as a director.

The Board Should Put Peloton Up for Sale

Without Mr. Foley in place, continuing his attempts to salvage his legacy, the Board can turn to maximizing value for shareholders.

Despite the incontrovertible mismanagement of the Company, Peloton has a large and loyal customer base, skilled employees, great technology and content, and a respected brand. A stand-alone Peloton, however, will still not be able to fully exploit the opportunities its assets and brand enable – especially now with a pressured balance sheet, significant cash burn and loss of investor confidence.

Undoubtedly, Peloton and its customer base would be extremely attractive to any number of technology, streaming, metaverse and sportswear companies (e.g. Apple, Disney, Sony, Nike), who could extend their presence in the home, in health and wellness and on the screen through Peloton. Given the mess that Peloton has become as an independent company, we are convinced that one or more of these strategic acquirors could provide significantly more value, with substantially less risk, than Peloton is likely to generate for its shareholders on its own.

The Board should immediately begin to explore these strategic alternatives and find a proper owner of Peloton who can make the most of its coveted employees, customer base, technology, and brand.

* * *

We recognize that Mr. Foley undoubtedly regards Peloton as “his” company and you, the Company’s directors, as “his” Board. He has outsized influence and outsized voting power by virtue of his status as founder. Perhaps some of you – friends with Mr. Foley for many years – feel obligated to do as he wishes. But the law and equity markets expect more. You are not here to preserve Mr. Foley’s dignity or his pride. Your role, as directors, is not to protect him from embarrassment or to shield him from blame.

Instead, you are charged with overseeing management and ensuring the best leader runs the Company. There can be no reasonable doubt that Mr. Foley is not suited to be Peloton’s CEO. And so, you must remove and replace Mr. Foley to be faithful to your obligations to shareholders. At the same time, you should explore whether there is a better owner for Peloton, which we fervently believe there is.

We hope you will take our input to heart, and act as responsible fiduciaries. This short letter is but our first; the damage caused by unremedied mismanagement at Peloton could fill many more pages. We hope we do not need to write them, but make no mistake: we will not tire from the task of holding Mr. Foley and you responsible for our losses, nor from reminding you of your obligation to maximize value for shareholders.

The ride for Mr. Foley is over. This Board must now independently chart a new path for Peloton.

Sincerely,

/s/

Jason Aintabi

Chief Investment Officer

About Blackwells Capital

Blackwells Capital was founded in 2016 by Jason Aintabi, its Chief Investment Officer. Since that time, it has made investments in public securities, engaging with management and boards, both publicly and privately, to help unlock value for stakeholders, including shareholders, employees and communities. Throughout their careers, Blackwells’ principals have invested globally on behalf of leading public and private equity firms and have held operating roles and served on the boards of media, energy, technology, insurance and real estate enterprises. For more information, please visit www.blackwellscap.com

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