Peloton Soars After Reports of Takeover Interest

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(Bloomberg) — Peloton Interactive Inc. soared in premarket trading after reports that it’s exploring takeover options, a move that could test investors holding short positions in the fitness company.

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The New York-based company is working with an adviser after an earlier plunge in Peloton’s shares made it a takeover target, according to people familiar with the matter, who asked not to be identified because discussions are private. The takeover interest is exploratory and may not lead to a transaction, they said.

The stock rose 27% in early premarket trading in New York and could see more gains at the New York open due to high short interest. A 12% short position on its free float could mean short sellers would scramble to cover their positions, fueling shares further higher.

“You don’t want to be short over a weekend when ‘Merger Monday’ is the day of the week when deals are announced,” said Jim Dixon, senior equity sales trader at Mirabaud Securities. “The rally in Peloton from M&A chatter was fueled a tad more from the outstanding short positions on the indoor exercise bike maker.”

Peloton’s stock has fallen more than 80% from the high a year ago as the gradual easing of pandemic restrictions fueled concern that growth would slow. It’s currently valued at just over $8 billion, based on Friday’s official market close of $24.60 a share — below its September 2019 initial public offering price of $29 a share.

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 Inc., Walt Disney Co., and Nike.

Amazon.com Inc. has been speaking to advisers about a potential deal, the Wall Street Journal reported on Friday. Nike Inc. is also considering a separate bid for Peloton, the Financial Times said. Neither Nike nor Amazon have held direct talks with Peloton, the FT reported.

Analyst views on the likelihood of a deal are mixed. John Blackledge at Cowan said any deal is unlikely given the company’s potential and vision, and Amazon isn’t an ideal fit as its focus is on mass-market selling while Peloton has a premium positioning. Wedbush’s Dan Ives said a bid from Apple would make strategic sense given the tech giant’s focus on health initiatives.

(Updates with trader comment in fourth paragraph, analyst comment in last paragraph.)

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