Joe Kiani, founder and CEO of Masimo, speaks at a press conference in Bangalore on January 2, 2017.
Manjunath Kiran | AFP | Getty Images
Despite voting for a change at last year’s annual meeting, shareholders of the medical device manufacturer fields According to activist investor Politan Capital Management, concerns about corporate governance remain largely unresolved.
Just a month before the 2024 annual meeting of shareholders, Politan, which has already won two seats on the board, is looking to go one step further. Led by Quentin Koffey, Politan has nominated two more directors to the company's board and said that without their election, management will continue to operate without oversight. Masimo founder and CEO Joe Kiani said he will not return if shareholders vote him out.
“This is shareholders' last chance for meaningful change,” Politan wrote in a letter to Masimo shareholders on Wednesday, laying out his arguments to investors ahead of the meeting. CMBC received a copy of the letter and an attached presentation.
Masimo, best known for its successful patent litigation over the Apple Watch first came under Politan's scrutiny last year, as the activist viewed the company as suffering from poor management, a lack of independent board leadership and a failed acquisition that had diverted the company from its core business.
Influenced by Politan's arguments, investors elected Koffey and Michelle Brennan to the board last year.
But improvements in corporate governance fell short of what shareholders deserved, Koffey wrote in the letter, pointing out that Masimo's board “does not review, approve or view any budget.”
“This results in Mr. Kiani spending what he wants and how he wants,” Koffey wrote.
For this year’s meeting, Politan has nominated Darlene Solomon, former Chief Technology Officer at Agilentand Bill Jellison, former CFO of Stryker.
Masimo shares have continued to fall, losing 18 percent since last year's session, while the S&P 500 has gained 26 percent during that time. Politan says he has failed to make meaningful changes to the company's leadership, adding that Masimo's board still has no control over CEO Kiani or the direction of the company.
The activist believes that if the company is managed properly, it could increase shareholder value by $10 billion. The current market capitalization is $7 billion.
“At its core, this upcoming vote is simply about that: addressing Masimo's long and deliberate refusal to allow independent oversight,” Koffey wrote in his recent letter.
Last year's proxy battle was hard-fought and costly. Masimo took aggressive steps to fend off Politan, including implementing a bylaw that forces the company to disclose its shareholder list. Many of these efforts were rejected by a judge in Delaware. Kiani threatened to resign if Koffey was elected.
A Masimo spokesman said in a statement that Politan's letter and presentation showed “in their own words their fundamental lack of understanding of our business.”
The Masimo spokesman added that Politan's efforts amounted to a “desperate attempt” to exert control.
“The shareholders have spoken”
Kiani remains CEO and many of the same issues remain. But in this year's proxy fight, Kiani sits in one of the director positions Politan has his sights set on.
“The shareholders have spoken,” Politan said in his presentation. “But nothing has changed.”
A key part of Politan's sales pitch to shareholders last year centered on Masimo's $1 billion acquisition of Sound United, the owner of high-end audio brands such as Bowers & Wilkins and Denon. Masimo's shares plunged 37% after the purchase was announced, and Politan highlighted the 2022 deal as an example of what happens under a poor governance structure.
While Kiani continued to claim that the merger would help Masimo bring its medical technology into the home, the company said in March that it would address investor concerns and spin off the consumer brands.
But the matter is far from settled. Politan wrote in his Wednesday letter that Kiani had dissolved the special committee of the spin-off, headed by Koffey, after it rejected or modified “many” of the CEO's demands. For the new company, Kiani had demanded licenses for Masimo's valuable intellectual property, the Masimo name, the company headquarters and the jet, as well as a $150 million capital injection, according to documents from both the activist and the company.
Politan argued that the proposed deal would result in the loss of Sound United and the critical intellectual property that is essential to Masimo's shareholder value.
“This is a transfer of valuable IP licenses, trade secrets and trademarks that could permanently damage Masimo's value and create a future competitor while personally benefiting Mr. Kiani,” Koffey wrote.
Politan also highlighted Mr. Kiani's “outrageous compensation” and “lavish” spending, citing Caribbean and European vacations on Masimo's corporate jet and stock pledges worth hundreds of millions of dollars.
The Masimo logo will be displayed at Masimo headquarters in Irvine, California on December 27, 2023.
Mario Tama |
Kiani told CNBC earlier this year that a third party was interested in a joint venture, but did not provide details. Koffey said he and Masimo's board did not learn the name of the potential partner until after a preliminary agreement was signed. Shareholders still have not been informed.
“Politan wants a separation done right,” Koffey wrote in his letter Wednesday. “We have been calling for a strategic review of spending on the Sound United business and consumer health care for over 18 months.”
Politan also pointed out in the letter that investors have been objecting to the company's compensation practices and director selection for over a decade.
Politan found that Masimo has ranked in the bottom 0.1 percent of Russell 3000 companies in pay voting since the indicator was created.
Kiani believes he would be entitled to a change-of-control settlement of more than $400 million if he loses his seat on the board or the company completes the spin-off in his preferred manner, according to regulatory filings.
Politan argues that the payout to Kiani is unenforceable under Delaware law and that it would not be triggered by Kiani's removal from the board because the activist offered to reappoint Kiani to an expanded board.
Politan believes the campaign must be successful because management's intransigence will make it difficult for another shareholder to launch a similar campaign in the future.
“For more than two years, Politan has overcome unprecedented hurdles thrown up by Masimo's board,” the activist said. “We doubt any shareholder will ever try this again.”
REGARD: Masimo CEO Kiani: Healthcare investors don’t understand the consumer side of the business
