Founder and CEO of Masimo Joe Kiani addresses a press conference in Bangalore on Jan. 2, 2017.
Manjunath Kiran | AFP | Getty Images
Despite voting for change eventually 12 months’s annual meeting, shareholders in medical device maker Masimo have seen their governance concerns go largely unresolved, in accordance with activist investor Politan Capital Management.
With only a month until the 2024 annual meeting, Politan, which has already won two board seats, is seeking to go further. Led by Quentin Koffey, Politan has nominated two additional directors to the corporate’s board, saying that without their election, management will proceed to operate without oversight. Masimo founder and CEO Joe Kiani said he won’t come back if shareholders vote him out.
“That is shareholders’ last probability at meaningful change,” Politan wrote in a letter to Masimo shareholders on Wednesday, laying out its case to investors ahead of the meeting. CMBC obtained a duplicate of the letter and an attached presentation.
Masimo, best known for its successful patent litigation over the Apple Watch, was initially targeted by Politan last 12 months because of what the activist viewed as bad management, an absence of independent board leadership and a flawed acquisition that took the corporate away from its core business.
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Swayed by Politan’s arguments, investors voted last 12 months to elect Koffey and Michelle Brennan to the board.
But governance improvements have fallen in need of what shareholders deserve, Koffey wrote within the letter, noting that Masimo’s board “doesn’t review, approve or see a budget.”
“This leads to Mr. Kiani spending whatever he wants nonetheless he wants,” Koffey wrote.
For this 12 months’s meeting, Politan has nominated Darlene Solomon, formerly chief technology officer at Agilent, and Bill Jellison, former chief financial officer at Stryker.
Masimo’s stock has continued to slip, falling 18% since last 12 months’s meeting, while the S&P 500 has gained 26% over that stretch. Politan says it has been stymied from making any meaningful changes on how the corporate is run, adding that Masimo’s board still has no oversight over CEO Kiani or the corporate’s direction.
The activist says that with proper governance, the corporate could show a $10 billion increase in shareholder value. Its current market cap is $7 billion.
“Fundamentally, what this upcoming vote is about is easy: fixing the prolonged and deliberate refusal by Masimo to allow independent oversight,” Koffey wrote in the most recent letter.
Last 12 months’s proxy fight was hotly contested and expensive. Masimo took aggressive steps to fend off Politan, introducing bylaws to force the firm to disclose its shareholder list. Lots of those efforts were rejected by a Delaware judge. Kiani threatened to quit if Koffey was elected.
A spokesperson for Masimo said in a press release that the letter and presentation from Politan demonstrated “in their very own words their fundamental lack of know-how of our business.”
The Masimo spokesperson added that Politan’s efforts amounted to a “desperate attempt” at control.
‘Shareholders spoke’
Kiani stays CEO and most of the same themes persist. But on this 12 months’s proxy fight, Kiani sits in one among the director seats targeted by Politan.
“Shareholders spoke,” Politan said in its presentation. “But nothing modified.”
A key a part of Politan’s pitch to shareholders last 12 months revolved around Masimo’s $1 billion acquisition of Sound United, the owner of high-end audio brands reminiscent of Bowers & Wilkins and Denon. Masimo’s stock plunged 37% after the acquisition was announced, and Politan highlighted the 2022 deal for instance of what happens under a poor governance structure.
While Kiani has continued to say that the tie-up would help Masimo bring its medical tech into homes, the corporate said in March that it will heed investor concerns and spin off the buyer brands.
However the matter is hardly resolved. Politan said in its Wednesday letter that Kiani dissolved the spinoff’s special committee, helmed by Koffey after it “rejected or modified many” of the CEO’s demands. For the brand new company, Kiani had been searching for licenses to Masimo’s beneficial mental property, the Masimo name, its corporate headquarters and jet in addition to a $150 million money infusion, in accordance with filings from each the activist and the corporate.
Politan argued that the contemplated deal would end in the lack of Sound United and the crucial mental property essential to Masimo’s shareholder value.
“It’s a transfer of beneficial IP licenses, trade secrets and trademarks that would permanently impair Masimo’s valuation and create a future competitor while personally benefiting Mr. Kiani,” Koffey wrote.
Politan also highlighted what it known as “egregious compensation” and “lavish” spending by Mr. Kiani, pointing to Caribbean and European vacations on Masimo’s corporate jet and tons of of hundreds of thousands of dollars’ price of stock pledging.
The Masimo logo is displayed at Masimo headquarters in Irvine, California, on Dec. 27, 2023.
Mario Tama | Getty Images
Kiani told CNBC earlier this 12 months that a 3rd party was focused on a three way partnership, but he didn’t provide specifics. Koffey said he and Masimo’s board were told the potential partner’s name only after a tentative deal had been signed. Shareholders still have not been informed.
“Politan wants a separation done right,” Koffey wrote in Wednesday’s letter. “We now have been asking for a strategic review of the Sound United business and consumer healthcare spending for over 18 months.”
Politan also noted within the letter that investors have opposed the corporate’s pay practices and director decisions for over a decade.
Masimo has ranked at the underside 0.1% of say-on-pay votes amongst corporations within the Russell 3000 for so long as that metric has existed, Politan noted.
Kiani believes he could be entitled to a change-in-control payout of greater than $400 million should he lose his board seat or if the corporate completes the spinoff in his preferred fashion, in accordance with regulatory filings.
Politan believes Kiani’s payout is unenforceable under Delaware law and that it will not be triggered by Kiani’s ouster from the board, given the activist has offered to re-appoint Kiani to an expanded board.
Politan says its campaign must succeed because management’s intractability will make it hard for one more shareholder to mount an identical push in the long run.
“For greater than two years, Politan has navigated unprecedented impediments thrown up by Masimo’s board,” the activist said. “We doubt any shareholder will ever attempt to achieve this again.”
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