Avaya Holdings Corp. is nearing a chapter 11 bankruptcy filing to restructure its balance sheet as it looks to turn around its business and move past problems surrounding the company’s accounting, people familiar with the matter said.
Avaya disclosed earlier this week it has reviewed various restructuring proposals from competing creditor groups. One plan, supported by a senior lender group including Apollo Global Management , would significantly reduce Avaya’s debt load through chapter 11, wipe out shareholders and, pending the completion of an internal investigation into controls over financial reporting, provide directors and executives with releases from potential litigation.
is leaving the department-store chain early next month to join
Levi Strauss
LEVI -2.12%
& Co. with plans to have her take over as the jeans maker’s CEO.
At Kohl’s, Ms. Gass has been under attack from activist investors for sales declines and a steep drop in the company’s stock price. In September, activist investor Ancora Holdings Inc., urged the company to replace Ms. Gass and its chairman. Kohl’s shares, down nearly 40% on the year, jumped 8% in early Tuesday trading.
Ms. Gass will leave Kohl’s Dec. 2 and join Levi Jan. 2, where she will serve as president with oversight of Levi’s brand and global digital and commercial operations. The 54-year-old will succeed Levi’s CEO
Chip Bergh
within 18 months, the company said. Mr. Bergh, who is 65 years old, has run Levi Strauss since 2011.
Kohl’s appointed
Tom Kingsbury
to serve as interim CEO until a permanent successor is named. Mr. Kingsbury is a former
Burlington Stores Inc.
CEO who joined Kohl’s board in 2021 as part of a settlement with activists. In a statement, Ancora said it was the right time to find new leadership and it was pleased that Mr. Kingsbury was the interim CEO.
Kohl’s also released preliminary results for the quarter ended Oct. 29. The company said that same-store sales decreased 6.9% compared with a year earlier. Net sales fell 7.2%. The company earned 82 cents a share compared with $1.65 a share.
It plans to report full results on Nov. 17.
Kohl’s, with roughly 1,100 stores, has struggled to attract shoppers amid rising competition from discounters, fast-fashion chains and online competitors. Earlier this year, Kohl’s scrapped plans to sell itself to the owner of Vitamin Shoppe—in a debt-funded deal initially worth $8 billion but later reduced. The company’s market capitalization has fallen to around $3 billion.
Ms. Gass wasn’t schooled in the art of selling clothes. She studied chemical engineering at Worcester Polytechnic Institute and received a master’s in business administration from the University of Washington. She then spent six years honing her marketing skills at
Procter & Gamble Co.
before joining
Starbucks Corp.
in 1996.
When she departed the coffee chain after nearly 17 years, founder
Howard Schultz
credited her with helping develop such products as the Frappuccino.
Ms. Gass joined Kohl’s in 2013 as chief customer officer with responsibility for marketing and the e-commerce business. In 2015, her role expanded to chief merchandising officer, and in 2018 she took over as CEO and joined the board.
Ms. Gass had some early success at the helm of Kohl’s, telling her team that they needed to think differently and shouldn’t be afraid to try new ideas. She formed a partnership with
Amazon.com Inc.
that allowed shoppers to use Kohl’s stores to return goods bought at the online retailer. Last year, she wooed Sephora away from JCPenney, where it had operated shops for more than a decade.
She overhauled the merchandise, dropping poorly performing brands such as Dana Buchman, and bringing in new ones, including Tommy Hilfiger, Eddie Bauer and Cole Haan. She expanded the selection of activewear from brands such as
Nike Inc.,
Adidas AG and
Under Armour Inc.
Ms. Gass also simplified discounts and pricing and is refurbishing stores. The company is on track to repurchase $1.3 billion in stock in the current fiscal year.
Yet, the moves haven’t improved Kohl’s business enough to satisfy some shareholders. While sales initially increased, they had started to decline even before the pandemic forced retailers to temporarily shut stores and kept consumers homebound. The company has faced two years with activist investors calling for board changes.
—Dean Seal and Lauren Thomas contributed to this article.
and is calling on the media company to buy the rest of Hulu, explore spinning off ESPN and refresh its board.
Mr. Loeb on Monday said his firm, which liquidated a large Disney stake earlier this year, has repurchased a “significant stake” in the company and sent a letter to Disney Chief Executive
Bob Chapek
urging the company to engage with Third Point on a number of issues.
Mr. Loeb praised growth in Disney’s streaming subscriber base, but also wanted Disney to more aggressively cut costs and consider a number of steps to shake up its portfolio.
The investor’s calls come at an inflection point for Disney and the streaming industry at large, which enjoyed torrential growth during Covid-19 but now face headwinds that include financial losses, domestic subscriber saturation and the introduction of new ad-supported tiers.
Mr. Loeb also now represents a fresh challenge for Mr. Chapek, who assumed the CEO job in February 2020, one month before Covid-19 shut down his company’s theme parks and the nation’s movie theaters. Earlier this year, Mr. Chapek found himself under fire from his own employees and Florida Gov.
Ron DeSantis
over his response to the state’s bill known by opponents as the “Don’t Say Gay” legislation.
Mr. Chapek was renewed to a three-year contract this summer, and recent subscriber growth in Disney’s flagship service, Disney+, has shown the company is advancing on the streaming industry’s dominant player,
Netflix Inc.
A spinoff of ESPN—itself a source of paying subscribers through its ESPN+ offering—would radically alter Disney’s presence in the streaming ecosystem.
“We welcome the views of all our investors,” Disney said in response to Third Point’s letter. The company said its board has been continuously refreshed, “with an average tenure of four years.”
Third Point is pushing Disney to “make every attempt” to buy up
Comcast Corp.’s
CMCSA 1.26%
remaining minority stake in the streaming giant Hulu before its contractual deadline in early 2024. Under a 2019 agreement, Comcast can require Disney to purchase its NBCUniversal subsidiary’s one-third stake in Hulu by that deadline for at least $9 billion, assuming the streaming service has an equity value greater than $27.5 billion.
“We believe that it would even be prudent for Disney to pay a modest premium to accelerate the integration but are cognizant that the seller may have an unreasonable price expectation at this time,” Mr. Loeb’s letter says.
Disney and Comcast have been in a dispute over the value of Hulu, The Wall Street Journal previously reported. When Disney took majority control of Hulu in 2019, the service was valued at a minimum of $27.5 billion. Comcast believes the value of Hulu is now closer to $70 billion, people familiar with the matter have said.
The two companies have already started to unwind some aspects of their partnership. Comcast’s NBCUniversal earlier this year exercised an option to exit its content-sharing agreement with Disney, the Journal reported. Content from NBCUniversal that previously would have gone to Hulu after airing on NBC and NBC-owned cable channels will now go directly to Peacock, NBCU’s streaming service.
Mr. Loeb’s letter also states that there is a “strong case to be made” that Disney should spin off its ESPN business to shareholders to alleviate leverage at the parent company, despite ESPN’s centrality to the company’s streaming offerings and the significant free cash flow it generates.
Mr. Loeb suggests that synergies between Disney and ESPN could be replicated through contractual arrangements. A spinoff would drive better long-term value for Disney shareholders and result in a business “no longer haunted by the specter of cord-cutting,” the letter says.
Cord-cutting has driven Disney to make drastic changes to its business model in the past. In the summer of 2015, former Disney CEO
Robert Iger
acknowledged that the company was seeing “some subscriber losses” to ESPN. One year later, ESPN lost two million subscribers, dropping to its lowest count since 2005.
That steady decline became an albatross on Disney’s stock price, which fell as investors feared a future in which ESPN—once a top moneymaker—fell in relevance and revenue.
ESPN’s troubles—and Wall Street’s response to them—were one reason Mr. Iger would decide to launch his own streaming service. Disney+ premiered in the fall of 2019, and its rocketing growth in its first 18 months caused Disney shares to rise even as Covid-19 wrecked other parts of the business.
Hollywood has been rampant with rumors about the future of ESPN since those first indications of subscriber losses, with rivals speculating that a spinoff or sale was in its future. Today, the sports network is one of three core components of Disney’s streaming bundle, along with Disney+ and Hulu.
Disney+ has 152.1 million subscribers as of the most recent quarter, ESPN+ has 22.8 million and Hulu has 46.2 million.
Mr. Loeb’s letter also urges the company to rethink the makeup of its board and consider a list of potential new members that Third Point has compiled. It also advocates for a wide-ranging cost-cutting program and the continuation of Disney’s pandemic-era suspension of cash dividend payments.
Mr. Loeb has been a thorn in the side of studio chiefs before. In 2013, he bought a stake in
Sony Group Corp.
and publicly criticized the company’s movie arm, Sony Pictures Entertainment. He called on the company to make cuts to the division and introduce “discipline and accountability.”
Soon after Mr. Loeb’s disclosure of a 7% stake, Sony Pictures’ then-CEO pledged to find at least $350 million in annual savings. Mr. Loeb sold his stake about a year later, but has called on Sony to make changes to its entertainment division in the years since.
Last week, Disney reported better-than-expected earnings and added 14.4 million new subscribers to its Disney+ streaming service, many of which came to the service amid its expansion internationally.
The company’s new customer additions brought its total at all of its streaming services, including Disney+, Hulu and ESPN+, to 221.1 million subscribers, which puts Disney’s streaming total narrowly ahead of rival Netflix Inc., which last month reported it had 220.67 million subscribers.
Disney’s share price is up more than 12% in the past week, but remains down about 20% since the start of the year, amid a broad pullback in technology and media stocks.
Last week, Disney also announced price increases to its streaming services, including for its planned ad-supported tier of Disney+, a move that industry executives and analysts said is intended to help drive profitability at its streamers.
Disney, whose direct-to-consumer segment has lost more than $7 billion since Disney+ launched in late 2019, predicts that Disney+ will achieve profitability by September 2024.
“We have plenty of room on price value,” Mr. Chapek said last week.
Third Point previously held 4.1 million shares of Disney and successfully pushed the company to suspend its $3 billion annual dividend and plow the funds instead into the streaming business.
But by the first quarter of this year, the hedge fund had completely exited its position. Mr. Loeb had become worried that it would take years for Disney’s streaming business to reap the profits needed to boost the company’s share price, a person familiar with his thinking told The Wall Street Journal in May.
Since 1967, the Florida land housing Disney’s theme parks has been governed by the company, allowing it to manage Walt Disney World with little red tape. WSJ’s Robbie Whelan explains the special tax district that a Florida bill would eliminate. Photo: AP
Write to Dean Seal at dean.seal@wsj.com and Erich Schwartzel at erich.schwartzel@wsj.com
Mr. Birchall, a straight-laced, 48-year-old wealth manager who rose to become Mr. Musk’s top deputy and the head of his family office, had growing concerns about a new power player in the
Tesla Inc.
TSLA 0.74%
CEO’s orbit.
Mr. Musk was increasingly relying on a new adviser, a 34-year-old, Russian-born ex-professional gambler named
Igor Kurganov.
Mr. Kurganov spent some of the pandemic sleeping in Mr. Musk’s home, where they chatted late into the night about how the world’s richest person might use his fortune to help shape the planet through a giving strategy known as “effective altruism.”
Mr. Kurganov had no experience in finance or security but was suddenly a central figure in both areas for Mr. Musk. He had moved from London to Texas and replaced some of Mr. Musk’s protection detail with new hires of his own. Not long after, the Tesla CEO told Mr. Birchall that he was so taken by the younger man’s ideas that he wanted to leave him in charge of his charitable giving, dispersing funds from Mr. Musk’s vast private fortune, currently around $230 billion, as he saw fit.
“Elon,” Mr. Birchall told his boss, according to three people briefed afterward. “You can’t.”
The clash between the two men, and their dueling efforts to gain the upper hand with Mr. Musk, provides a peek into the often tumultuous private workings of Mr. Musk’s inner circle. As Mr. Musk’s breakneck, $44 billion bid for Twitter shows, the entrepreneur can be prone to quick decisions, ones that he can reverse just as quickly as he makes them. That deal is now in peril, with Mr. Musk trying to walk away and
Twitter
TWTR 4.00%
suing him to complete it.
All the while he is egged on by a rotating crew of investors, underlings and ever-changing friends whose power and personal wealth is closely tied to their proximity to Mr. Musk, according to people who do business with him.
Two men in particular have pulled the Tesla CEO in opposing directions.
Mr. Birchall is an Eagle Scout and practicing Mormon who doesn’t smoke or drink and grew up traveling California as part of a song-and-dance troupe called “The Birchall Family Singers.” He declined to be interviewed through a representative of Mr. Musk’s foundation.
Mr. Kurganov is a high-roller with a reported more than $18 million in poker winnings, with long hair and beard and a peaceful demeanor. He has said in a podcast interview that he dropped out of college because he was smoking too much marijuana. He didn’t respond to requests for comment.
Igor Kurganov, shown playing poker in a tournament in 2016, became a top adviser to Mr. Musk on charitable giving.
Photo:
Joe Giron/World Poker Tour
Last winter, Mr. Musk came to a compromise between the two. He allowed Mr. Kurganov to oversee $5.7 billion in Tesla shares that the CEO pledged late last year to eventually donate to charity. The rest of Mr. Musk’s overall fortune remained under Mr. Birchall’s purview.
That decision wasn’t, however, the end of the fracas.
This account is based on interviews with more than a dozen people close to Messrs. Musk, Birchall and Kurganov, including associates of the Musk Foundation and investors.
Ultimate fixer
For a man of immense resources, Mr. Musk is a minnow in the world of big-dollar philanthropy. Compared with other magnates such as
Microsoft Corp.
co-founder
Bill Gates
and
Amazon.com Inc.
founder
Jeff Bezos,
whose wealth, like Mr. Musk’s, is tied up in shares of their companies, Mr. Musk has said little concrete about his approach to giving. He didn’t respond to requests for comment.
Mr. Musk’s personal foundation gave away $23.6 million in fiscal 2020, the most recent year for which data is available, filings show. That represented roughly 0.02% of his net worth as of the end of that year, according to Forbes rankings.
Though Mr. Musk is known to favor his own counsel most of all, the man in charge of his foundation since 2016 has been Mr. Birchall, one of the longest standing in his inner circle.
Jared Birchall is a top deputy to Mr. Musk and head of the firm managing his fortune.
Photo:
Patrick T. Fallon/Bloomberg News
The alliance reflects Mr. Birchall’s role as the ultimate fixer for Mr. Musk, taking care of matters large and small. In addition to handling billions in assets, Mr. Birchall in 2018 under a pseudonym registered the website www.justballs.com, for example, after Mr. Musk mused online that he might want to own the domain name someday, legal documents show.
Mr. Birchall entered the technology world through finance. After his brief singing stint with his siblings—he is one of 11 children—he attended Brigham Young University.
He then spent a year at Merrill Lynch, where he was discharged for what the firm described in a filing as “sending correspondence to a client without management approval.”
Mr. Birchall eventually moved into private wealth and crossed paths with Mr. Musk about a decade ago while working as a client adviser in
Morgan Stanley’s
southern California offices. There, he impressed Mr. Musk by helping arrange hundreds of millions of dollars of loans from the investment bank at a time when the Tesla co-founder was strapped for cash, a person close to Mr. Musk says. When Mr. Musk started a private firm to manage his own money roughly six years ago, he tapped Mr. Birchall to run it.
Mr. Birchall’s work for Mr. Musk has at times led him into strange public controversies and lawsuits. After a British spelunker criticized Mr. Musk’s offer to help rescue a youth soccer team trapped in a flooded Thailand cave in 2018, Mr. Birchall created a fake email address under the name “James Brickhouse” to hire a private investigator to investigate the man, according to court documents.
Mr. Musk during a Tesla event in Shanghai in January 2020.
Photo:
Aly Song/REUTERS
Mr. Musk subsequently called the man “pedo guy” in a tweet, though he later apologized and said it was a joking taunt. The spelunker unsuccessfully sued Mr. Musk for defamation in a Los Angeles federal court.
In addition to his role helping manage Mr. Musk’s fortune, Mr. Birchall is also a director of his tunneling startup, Boring Co., and chief executive officer of Mr. Musk’s Neuralink, which aims to make a brain implant that could be used by quadriplegic patients to control a computer or other devices.
When Mr. Musk announced in 2020 he would move from California to Texas, Mr. Birchall moved his family there, too. He has since become the closest thing Mr. Musk has to a public face in the Texas capital, handling business and attending events on Mr. Musk’s behalf.
“No one else you reach out to who is close to Elon is going to return your calls,” says Tyson Tuttle, former chief executive of Austin semiconductor manufacturer Silicon Valley Labs.
‘Make big moves’
Mr. Kurganov first became friendly with Mr. Musk socially.
Born in Russia but raised in Germany from age 4 by parents who were engineers by trade, Mr. Kurganov grew up in a working class, immigrant household, according to an interview he gave to the Paul Phua Poker podcast.
In his 20s, he gained a level of fame as a professional poker player. Beginning around a decade ago, he began playing high-stakes tournaments in Las Vegas and racking up wins, fellow poker players say. He earned particular renown in 2012 when he won a €1,080,000 purse in Monte Carlo.
He was known as an aggressive player, and had the respect of his fellow pros, the players say. “Igor had a willingness to play a lot of hands and make big moves,” says one of them, Dan Smith.
Though he was spending much of his time in Las Vegas, his personality didn’t match the city’s loud stereotypes. One person who knows him says he was often drawn into long, philosophical conversations on topics such as the rise of artificial intelligence in poker. Mr. Kurganov was concerned that a computer program could be built that could beat even the most talented human player.
Ging Masinda, a Las Vegas marketer and acquaintance of Mr. Kurganov, says the flashiest thing about him is that he sometimes wears eyeliner. “There’s a kid in him,” she says.
In a 2015 interview on the Poker Life Podcast, he said he was developing an accounting app for poker players. He also co-founded the organization Raising for Effective Giving, designed to help poker players, as well as fantasy-sports players and finance professionals, find the right charities to which to donate their winnings, according to archived webpages.
REG was focused on effective altruism, an approach to giving that suggests that inherently subjective qualities such as relative charitable need can be quantified. It’s still a niche approach, because many charitable experts say it can encourage an impersonal, utilitarian approach to complicated moral issues.
Mr. Kurganov and Liv Boeree at an event in San Francisco in 2016.
Photo:
Kelly Sullivan/Getty Images for The Ocean Gala
Mr. Kurganov’s social life, the fellow poker players say, revolved around his longtime partner, fellow professional poker player Liv Boeree. Ms. Boeree has long been friends with the recording artist Grimes, who was first romantically linked to Mr. Musk in 2018. Around the same time, Mr. Musk made Ms. Boeree one of the handful of people he follows on Twitter.
“She was elated” about the follow, according to Joe Stapleton, a poker commentator who spoke to her about it.
The two couples began spending time together. Messrs. Musk and Kurganov bonded over a shared love of Burning Man, the free-spirited desert festival that both regularly attend. Ms. Boeree, meanwhile, stayed close with Grimes; the two women posted photos together on social media. Ms. Boeree didn’t respond to requests for comment, and Grimes, whose legal name is Claire Boucher, couldn’t be reached.
The introduction to Mr. Musk came as Mr. Kurganov was soon to retire from professional poker with millions in personal winnings. Yet his poker accounting app had never gotten off the ground, and REG remained small-fry in terms of the amount of money it directed.
REG said on its website that it directed $3.1 million in charitable giving in 2019, the most recent year mentioned, which the organization said “reflects all donations that have been significantly influenced by us.” The amount couldn’t be independently verified. REG didn’t respond to requests for comment.
When the pandemic hit, Messrs. Kurganov and Musk became closer. Mr. Kurganov laid out a vision in which he might be able to help Mr. Musk combine his interest in science and his vast fortune, for the greater good.
Mr. Musk, known to be open to new ideas, was intrigued by the prospect of an approach to giving that no other major donor had yet tried, according to people familiar with the matter. He gave Mr. Kurganov a job vetting grant requests from his foundation.
When Mr. Musk moved to Texas, Mr. Kurganov and Ms. Boeree soon followed.
A launch facility under construction in Brownsville, Texas, in February for SpaceX, one of Mr. Musk’s companies.
Photo:
Mark Felix/Bloomberg News
‘Donation decisions’
By last August, two years after retiring from poker, Mr. Kurganov had an official email address at the Musk Foundation and was heavily involved in the charity. That month, he corresponded with Chris Carberry, CEO of the nonprofit Explore Mars Inc. The group was looking to raise $600,000 to spirit an Afghan girls robotics team out of the war-torn country.
Mr. Kurganov was skeptical about the cost. “Regarding the price breakdown, what I’m trying to find out is what the expenses will be specifically—I imagine there are additional costs to simply the flight costs, but am still surprised that the total cost scales linearly with the number of people,” he wrote in an email reviewed by The Wall Street Journal.
Mr. Carberry, who didn’t respond to requests for comment, was disappointed but not dissuaded. In another email, also reviewed by the Journal, he wrote to an associate “We have worked effectively with Igor in the recent past. Igor makes the day-to-day donation decisions.”
To Mr. Birchall, that was an untenable situation. He was legally head of the foundation, and as he saw it, Mr. Kurganov was a newcomer who suddenly had immense influence on what to do with Mr. Musk’s money, he told people.
Mr. Birchall also learned that a Federal Bureau of Investigation agent had begun making preliminary inquiries into Mr. Kurganov as part of his job to watch for foreign interference in U.S. companies, people familiar with the matter say. The FBI agent was concerned that a newcomer had so quickly been welcomed into Mr. Musk’s inner circle, the people say.
Mr. Kurganov hasn’t been accused of wrongdoing. An FBI spokesperson didn’t respond to a request for comment.
Mr. Birchall, alarmed that Mr. Musk could be drawn into a federal investigation, this spring again pressed his internal case against Mr. Kurganov, people familiar with the matter say. It was inappropriate, in Mr. Birchall’s view, for Mr. Kurganov to have a central role in the $5.7 billion in shares that Mr. Musk had promised to donate.
During this period, Mr. Birchall was a constant presence at Mr. Musk’s side as his boss pursued Twitter. He helped line up billions of dollars in financing and spoke to shareholders and investors on Mr. Musk’s behalf about the future of the social-networking service.
By spring, the Tesla CEO’s bid for Twitter required him to put up tens of billions of dollars in personal funding and was consuming much of his attention. Meanwhile, Tesla’s stock was dropping as the broader market pulled back, pinching Mr. Musk’s net worth.
Mr. Birchall in May asked Mr. Musk to remove Mr. Kurganov from his post at the foundation.
Mr. Musk agreed to let Mr. Kurganov go, the representative of the foundation says.
None of Mr. Musk’s money was ultimately spent on projects related to effective altruism, the representative says, and Mr. Kurganov’s Musk Foundation email was switched off roughly six weeks ago.
—Elisa Cho and Rebecca Elliott contributed to this article.
WASHINGTON—Regulators proposed new requirements for investment funds that tap into public angst about climate change or social justice, in an effort to address concerns about “greenwashing” by asset managers seeking higher fees.
The Securities and Exchange Commission voted Wednesday to issue two proposals that aim to give investors more information about mutual funds, exchange-traded funds and similar vehicles that take into account so-called ESG—meaning environmental, social and corporate-governance–factors. One of the proposed rules would broaden the SEC’s rules governing fund names, while the other would increase disclosure requirements for funds with an ESG focus.
WASHINGTON—Regulators are carrying out a sweeping investigation of conflicts of interest at the nation’s largest accounting firms, asking whether consulting and other nonaudit services they sell undermine their ability to conduct independent reviews of public companies’ financials, according to people familiar with the matter.
The Securities and Exchange Commission probe highlights the agency’s new focus on financial-market gatekeepers such as accountants, bankers and lawyers. These firms help companies raise capital and communicate with shareholders, but also have duties under federal investor-protection laws. Auditors are a shareholder’s first line of defense against sloppy or dodgy accounting.
WASHINGTON—Regulators are carrying out a sweeping investigation of conflicts of interest at the nation’s largest accounting firms, asking whether consulting and other nonaudit services they sell undermine their ability to conduct independent reviews of public companies’ financials, according to people familiar with the matter.
The Securities and Exchange Commission probe highlights the agency’s new focus on financial-market gatekeepers such as accountants, bankers and lawyers. These firms help companies raise capital and communicate with shareholders, but also have duties under federal investor-protection laws. Auditors are a shareholder’s first line of defense against sloppy or dodgy accounting.
Construction is expected to begin this spring on one of the largest renewable energy projects in New York since Niagara Falls was harnessed for hydropower more than a half-century ago.
By late 2025, a 339-mile high-voltage transmission line is expected to deliver enough hydropower from Quebec’s remote forests to supply about 20% of New York City’s needs. The first electricity will finally flow 17 years after developers set out to bury a power line along the bottoms of Lake Champlain and the Hudson River, assuming they clear one last regulatory hurdle and encounter no further challenges. Opponents still have concerns about the project’s environmental impacts.
is drawing interest from potential suitors including
Amazon.com Inc.,
AMZN 13.54%
according to people familiar with the matter, as the stationary-bike maker’s stock slumps and an activist urges it to explore a sale.
Amazon has been speaking to advisers about a potential deal, some of the people said. There’s no guarantee the e-commerce giant will follow through with an offer or that Peloton, which is working with its own advisers, would be receptive.
Other potential suitors are circling, these people said, but no deal is imminent and there may not be one at all.
Should there be a transaction, it could be significant, given Peloton’s market value of around $8 billion—down sharply from its high around a year ago of some $50 billion.
While Peloton was once a pandemic darling as homebound customers ordered its pricey exercise equipment that pairs with virtual classes, its stock closed Friday at $24.60, below its September 2019 IPO price of $29, following a slowdown in its once-torrid growth.
Its shares jumped around 30% in after-hours trading Friday, after The Wall Street Journal reported on the interest from Amazon and others.
Despite its woes, linking up with Peloton would give Amazon or another party access to its millions of well-heeled users and their data, and a big boost in the burgeoning market for health and wellness technology. A desire for positioning in that market helped drive
Oracle Corp.’s
$28.3 billion deal to buy electronic-medical-records company
Cerner Corp.
, announced in December.
There are several potential ties between Peloton and Amazon’s existing businesses, such as its fleet-and-logistics arm, which could help the bike company address supply-chain issues it and others are grappling with as a result of the pandemic. A Peloton subscription could also theoretically be bundled with Amazon Prime, which offers users waived shipping costs, a streaming service and more for a monthly or annual fee. Amazon has bundled the services of other companies it has acquired as an added incentive for shoppers to sign up for the program, for which it is charging $139 a year starting this month.
Amazon has been pushing into connected health in recent years, launching its Halo Health and Wellness tracker. Data from Peloton riders, who have the option to track their heart rate and energy consumption during a ride, could help underpin other Amazon products.
Should Amazon decide to pursue Peloton, it certainly has the wherewithal. On Thursday, the company reported more than $14 billion in quarterly profit, nearly double the year-earlier haul. Its shares rose 13.5% Friday, giving the company a market value of around $1.6 trillion.
Amazon’s approach to deal making spans its businesses, which range from e-commerce to groceries and streaming, and the cloud. Amazon’s biggest deal to date is its purchase of Whole Foods Market Inc. for $13.7 billion in 2017. Like Peloton, Whole Foods was the target of an activist shareholder who was pressuring the company to sell itself.
In May, Amazon agreed to buy movie studio MGM for around $6.5 billion. The deal is being scrutinized by antitrust regulators as Amazon and other technology giants face intensifying attention from U.S. regulators and lawmakers related in part to their past acquisitions.
Blackwells Capital LLC is pushing Peloton’s board to fire Chief Executive
John Foley
and pursue a sale. Blackwells argues that the company is weaker today than before the pandemic and believes Peloton would be better off as part of a larger company. The investment firm said in a letter it made public last week that Peloton could be an attractive acquisition target for larger technology or fitness-oriented companies.
Peloton hasn’t publicly responded to Blackwells’s call for it to explore a sale.
Mr. Foley has said that Peloton is reviewing the size of its workforce and resetting production levels to improve profitability as the company adapts to more seasonal demand for its equipment.
It may be difficult to engineer any deal if Mr. Foley isn’t supportive, as he and other insiders have shares that gave them control of over 80% of Peloton’s voting power as of Sept. 30, according to a company proxy filing.
Mr. Foley, a former Barnes & Noble Inc. executive, co-founded the company in 2012.
After a rapid ascent, Peloton has been grappling with slowing demand for its products. Mr. Foley has said that the company is “taking significant corrective actions to improve our profitability outlook and optimize our costs.”
Peloton recently disclosed that it would start charging customers hundreds of dollars in delivery fees and setup charges for its bikes and treadmills. In August, Peloton cut the list price of its original bike by 20%.
Peloton is set to announce results Tuesday. The company reported preliminary fiscal second-quarter revenue of $1.14 billion and said it ended the quarter with 2.77 million subscribers.
—Dana Mattioli contributed to this article.
Write to Cara Lombardo at cara.lombardo@wsj.com, Miriam Gottfried at Miriam.Gottfried@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com
An activist investor wants Peloton Interactive Inc. to fire its chief executive and explore a sale after the stationary-bike maker’s stock plummeted more than 80% from its high, as growth slowed.
Blackwells Capital LLC has a significant stake of less than 5% in Peloton and is preparing to push the company’s board to fire CEO
John Foley
and pursue a sale, according to people familiar with the matter. The firm believes Peloton could be an attractive acquisition target for larger technology or fitness-oriented companies, the people said.
Once a pandemic darling as homebound customers ordered its exercise equipment that pairs with virtual classes, Peloton’s stock is trading below its September 2019 initial public offering price of $29 a share.
Peloton’s shares plunged 24% Thursday after a CNBC report that it was temporarily halting production of its products because of decreasing demand. Mr. Foley said in a subsequent letter to employees that Peloton is reviewing the size of its workforce and resetting production levels, as the company adapts to more seasonal demand for its equipment. He also said the report was incomplete.
Mr. Foley also said in a statement that day that the company is “taking significant corrective actions to improve our profitability outlook and optimize our costs” and would share more details with earnings Feb. 8. The company reported preliminary second-quarter revenue of $1.14 billion and said it ended the quarter with 2.77 million subscribers.
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Earlier last week, Peloton disclosed on its website that it would start charging customers hundreds of dollars in delivery fees and setup charges for its bikes and treadmills. In August, Peloton cut the list price of its original bike by 20%.
Peloton share’s rebounded 12% Friday, closing at $27.06 and giving the company a market value of nearly $9 billion. At its high around a year ago, the New York City company had a market value of around $50 billion.
Blackwells argues that the company is weaker today than before the pandemic, the people said. The firm places much of the blame on Mr. Foley, who is also chairman, and believes Peloton would be better off as part of a larger company, they said.
While the fund is not exactly a household name, Blackwells has run successful activist campaigns before, and analysts have said Peloton could be vulnerable to an investor challenge or takeover, given its recent woes. Blackwells, founded in 2016 by
Jason Aintabi,
previously agitated at
Monmouth Real Estate Investment Corp.
, a real estate investment trust that agreed to a roughly $4 billion sale, and at another REIT,
Colony Capital Inc.,
and Colony Credit. The multi-year Colony campaign resulted in former CEO
Tom Barrack
‘s stepping down and a revamp of the business, now known as DigitalBridge Group Inc.
Still, it would take significant pressure from other shareholders to prompt change, given that Mr. Foley and other insiders have super-voting Class B shares. Those shares gave them control over 80% of Peloton’s voting power as of Sept. 30, according to a company proxy filing.
Blackwells is critical of Mr. Foley for a laundry list of actions, including what it says are inconsistent pricing and manufacturing strategies, the people said.
Mr. Foley, a former Barnes & Noble Inc. executive, and others co-founded the company in 2012 and began selling bikes in 2014.
