John Foley, co-founder and former chief executive officer of Peloton Interactive Inc., PTON -3.41%, has faced repeated margin calls for money he borrowed against his Peloton holdings before ending last month, according to people familiar with the situation resigned from the board of the fitness company.
As Peloton’s shares plummeted last year, Goldman Sachs Group Inc. GS -2.11% repeatedly asked Mr. Foley to provide fresh funds or additional collateral for personal loans the bank had extended to him, the people said. The company’s stock price is down almost 95% since its peak of $160 in December 2020.
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Stepping down from the board gave Mr. Foley the flexibility to sell or pledge additional Peloton stock, although he said margin calls were not the reason he left the company.
“I didn’t resign from the board because I was underwater,” he said. “The extent to which I owed Goldman was because I am, and still am, bullish on Peloton. It was and is a great company.”
The former chairman and CEO had pledged about 3.5 million Peloton shares, or about 20% of its stake at the time, as collateral as of the end of September 2021, securities documents show. The pledged shares were worth more than $300 million a year ago. At current prices, they’re worth around $30 million.
Peloton has cut thousands of jobs this year to stem its losses.
Photo: John Smith/VIEWpress/Getty Images
Mr. Foley was able to secure private financing and avoid Goldman stock sales, the people said. He declined to say Monday how much of his current stake had been pledged or how much he had borrowed against his holdings.
His seat on the board limited his ability to raise additional funds, since most publicly traded companies prohibit directors and executives from selling their shares during certain trading periods. In addition, Peloton’s policy limits commitments for margin loans by directors or officers to 40% of the value of an individual’s stock or vested options.
Mr. Foley’s decision to leave the board on September 12 followed a turbulent few months at the company he co-founded a decade ago, as well as a sharp decline in his personal wealth as Peloton’s declining fortunes reduced the value of his holdings. His stake in the company, which was worth $1.5 billion a year ago, is currently worth less than $100 million.
“Anyone can see I’ve had a difficult year,” said Mr. Foley. “It wasn’t a fun personal record reset.”
Barry McCarthy, a Silicon Valley veteran, became Peloton’s CEO in February.
Photo: Angela Owens/Wall Street Journal
In February, Mr. Foley resigned as Peloton’s CEO and was succeeded by Barry McCarthy, a former executive of Netflix Inc. and Spotify Technology SA. Mr. Foley retained his position as Executive Chairman of Peloton and continued to hold a controlling interest in the Company through Class B shares with 20 votes apiece.
A few weeks later, Mr. Foley reported that he had sold $50 million worth of Peloton stock in a private transaction. At the time, Peloton said the sale was part of the executive’s personal financial planning. The sale left him and his wife, Jill Foley, a former Peloton executive, with 6.6 million shares and options on an additional 8.4 million, according to securities filings, which together are currently worth less than $100 million. He hasn’t reported any stock or option sales since March. Business Insider reported in March that Mr. Foley was in discussions with Goldman about restructuring his personal loans.
Peloton’s business deteriorated over the spring and summer, with the company reporting a $1.2 billion loss in August and the first quarter ever in which its subscriber base didn’t grow. The company has cut thousands of jobs this year to stem its losses, including a round of layoffs announced last week.
Mr. Foley’s 10-year tenure as CEO has been one of rapid growth and sometimes lavish spending. He got warmed to by Peloton employees last December for hosting a celebratory Christmas party attended by some of the company’s celebrity instructors weeks after a hiring freeze was imposed. Images circulated on Instagram of robed instructors dancing at New York’s luxury Plaza Hotel. Mr Foley acknowledged on social media that the event caused “frustration and anxiety” among staff.
Peloton was on a wild ride, announcing its CEO would be stepping down and cutting thousands of jobs despite seeing a surge in sales early in the pandemic. Here’s why Peloton became a viral success and why it’s now spreading. Photo illustration: Jacob Reynolds
That same month, Mr. Foley paid $55 million to purchase an oceanfront mansion in East Hampton, NY, according to real estate records and people familiar with the transaction. He and Ms. Foley put their Manhattan penthouse up for sale in September. The property, which most recently cost $6.5 million, is up for sale, according to StreetEasy.
Margin loans, or borrowing against portfolios of stocks and bonds, involve the risk that if a security’s price falls too low, a broker may require additional cash or collateral to meet the minimum equity requirements. Sharp falls in stock prices during the 2000 dot-com outbreak and the 2008 financial crisis led to margin calls from executives of well-known companies.
John Foley paid $55 million to buy this oceanfront mansion in East Hampton, NY
Photo: PICTOMETRY
Peloton requires directors, officers and employees to pledge their shares as security for margin loans. Other Peloton executives have also pawned some of their Class B shares, and in the annual report filed last month, Peloton warned that investors could be harmed if its stock falls and executives are forced to sell shares.
Goldman has worked closely with Peloton even when Mr. Foley was CEO. The investment bank was one of the lead underwriters of the company’s 2019 IPO. Bankers from Goldman also led a $1 billion stock offering in November 2021.
Investors were initially furious with Peloton — shares fell 11% to $29 on the day of its debut. The stock skyrocketed in 2020 during the outbreak of the Covid-19 pandemic, giving the company a peak market value of $50 billion and making Mr. Foley a billionaire on paper. Shares closed up 3.4% at $8.78 on Tuesday.
– Theo Franz
and Katherine Clarke contributed to this article.
write to Sharon Terlep at [email protected] and Suzanne Vranica at [email protected]
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