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When Peloton spun the wheel on its initial public offering this week, it disclosed to would-be investors that it too would use the kind of dual-share class system that has become popular with the Silicon Valley set.

But unlike most of the companies before it, Peloton’s new class B shares are going to be supercharged, carrying 20 votes apiece as opposed to the market standard 10.

The maker of high-end fitness equipment follows lossmaking office space provider WeWork and Ultimate Fighting Championship-owner Endeavor in giving some share classes 20 votes a pop. Lyft and Pinterest did the same.

DD senses a trend is emerging. Portfolio managers will need to pipe up now before this quickly becomes the new market standard for initial public offerings.

The Peloton prospectus offered a window into the $4bn private group, which has likened itself to both Apple — with its sleek treadmills and stationary bicycles — and Netflix. At the same time, it has been locked in stiff competition with companies such as SoulCycle, Flywheel, Equinox and Orangetheory Fitness.

Its marketing campaign to win new buyers has been expensive. While revenues more than doubled in the year to June 30 — rising to $915m from $435m the year before — its losses rose nearly-fourfold to $196m. It is burning cash as it expands.

The listing also comes at a time when consumers are being flooded with fitness and wellness apps, hacks and memberships. Investors are wary that too much capital has flowed into the industry, allowing companies to pursue growth over profits.

Like the technology companies that have already listed this year, Peloton shared one other similar risk factor in its prospectus.

“We have incurred operating losses in the past, expect to incur operating losses in the future, and may not achieve or maintain profitability in the future,” it said.

There was one other line from chief executive John Foley that caught our eye. He pitched the company as “so much more” than a maker of fitness equipment in a letter to prospective investors.

“It is no secret that exercise makes us feel good. It’s simple science: exercising creates endorphins and endorphins make us happy,” he wrote. “On the most basic level, Peloton sells happiness.”

Now where have we heard that before?

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Investors take the spotlight in potential $200bn Altria-Philip Morris tie-up deal

Wednesday’s DD led off on the poor market reception to the potential tie-up between Marlboro makers Altria and Philip Morris International.

Shares in both companies recovered some of their losses on Wednesday, with Altria rising 1.3 per cent and PMI up 3.65 per cent.

Still, that has not been enough to fully recover the $13bn of combined market value that was wiped off after PMI revealed its all-share merger plans.

We heard a bit more from top analysts in the sector as investors had more time to digest the potential deal. Here’s a sampling:

Citigroup: So far we haven’t spoken to one PM shareholder who supports it. At one level, the argument is just a portfolio one: there are positives and negatives for holding each stock. By having two companies listed, investors can choose the balance of pros and cons they want. By merging the two, management would be forcing investors to take the weighted average.

Bonnie Herzog, a Wells Fargo strategist who supports the deal, said she had fielded “a mountain of calls” from investors in both companies who were “frustrated with the potential deal mechanics”. A “merger of equals” structured as a nil-premium offer from PMI could amount to a “takeunder” of Altria, she noted.

Get the full story here.

The perils of football investing: Bury FC and Bolton Wanderers FC

It’s being called “one of the darkest days” in the history of English football. On Wednesday Bury FC, a 134-year-old club, became the first to be expelled by the English Football League, the body that runs the three professional divisions below the Premier League, since 1992 due to mismanagement.

A Bury fan at the gates of Gigg Lane, Bury. C&N Sporting Risk is “unable to proceed” with the proposed takeover of Bury, the data analytics company has announced. PRESS ASSOCIATION Photo. Picture date: Tuesday August 27, 2019. See PA story SOCCER Bury. Photo credit should read: Peter Byrne/PA Wire.
A fan at the gates of Gigg Lane, Bury's ground in Greater Manchester © Peter Byrne/PA

A similar fate faced Bolton Wanderers FC, which was given 14 days to resolve its own financial difficulties. The club announced later on Wednesday that it had secured a takeover with an investment group called Football Ventures, which would secure the club’s future.

DD readers may be accustomed to reading exciting stories about high-profile football takeovers. Most recently, Britain’s richest man, Jim Ratcliffe, expanded his burgeoning club portfolio with a deal for France’s OGC Nice.

But for every one of these stories, there are tales of woe and misery.

Look no further to the travails of Sunderland AFC, which was relegated in back to back seasons in recent years, and is now on the verge of being acquired by the men who run the family office of US tech billionaire Michael Dell. That would mark the club’s third set of owners in just a few years.

Returning to Bury FC, the FT’s Thomas Hale, Murad Ahmed and Andy Bounds have just published this story looking at the club’s misfortunes. It includes a look at how even Bury’s car park became sucked into the world of speculative property finance.

Smart reads

H2O and liquidity A smart column calling on regulators to look more closely at funds that invest in hard-to-trade securities following the sharp markdowns at the fund manager H2O. (Bloomberg)

Bayer’s headache After lots of recent coverage over the horrific reality at Germany’s Bayer following its takeover of US-based Monsanto, The Wall Street Journal is out with a nice chart-led piece that tracks the disastrous deal. (WSJ)

US banking deregulation With fears of a recession creeping and concerns over a swollen leverage loan market, why exactly are we deregulating the banks right now asks the FT’s Brooke Masters. (FT)

Saudi Aramco shambles Here is a concise WSJ video that highlights all the problems and questions that the world’s largest and most profitable oil company faces before it can move ahead with its planned stock market listing next year. (WSJ)

Job moves

  • Medtronic, the US medical device group, said its chief executive Omar Ishrak will step down in April and will be replaced by Geoff Martha, the head of its restorative therapies group.
  • Anthony DiClemente, a former Wall Street analyst, has been named as head of investor relations for ViacomCBS, once their merger has been completed. DiClemente joined CBS earlier this year in the same role and before that worked as an analyst at Evercore, Nomura, Barclays and Lehman Brothers.
  • Allen & Overy has hired data protection specialist Ulrich Baumgartner as a partner at the law firm’s Munich office. He joins from Osborne Clarke, where he has been a partner since 2009.
  • Instacart chief financial officer and chief operating officer Ravi Gupta is moving to Sequoia Capital as a partner on the firm’s growth team starting in January.

News round-up

Sacklers to remain billionaire family if Purdue settles opioid lawsuits (BBG)

Are companies right to abandon the shareholder-first mantra? (FT)

Amazon holds talks with Indonesian ride-hailing start-up Gojek (WSJ)

Carlyle is said to weigh US listing for Addison Lee minicabs (BBG)

Toyota and Suzuki deepen alliance with capital tie-up (FT)

Thomas Cook agrees main terms of £900m rescue deal (FT)

Cathay Pacific crisis ushers in nervous new era for Hong Kong Inc (FT)

Coty suffers worsening sales at its biggest division (FT)

Jeffrey Epstein’s road through Wall Street was a bumpy one (WSJ)

TeamViewer seeks valuation of up to €5bn in Frankfurt IPO (FT)

Hudson’s Bay to sell Lord & Taylor to Le Tote for $100m (FT)

Tallgrass Energy receives take-private offer from Blackstone (Reuters)

Due Diligence is written by Arash Massoudi, Javier Espinoza and Robert Smith in London, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Lindsay Fortado and Mark Vandevelde in New York, and Don Weinland in Beijing.

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