Despite vote for change At last yr’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 trying to go one step further. Led by Quentin Koffey, Politan has nominated two more directors to the corporate's board and said that without their election, management will proceed to operate without oversight. Masimo founder and CEO Joe Kiani said he is not going to 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 replica of the letter and an attached presentation.
Masimo, best known for its successful patent litigation over the Apple Watch first got here under Politan's scrutiny last yr, because the activist viewed the corporate as affected by poor management, a scarcity of independent board leadership and a failed acquisition that had diverted the corporate from its core business.
Influenced by Politan's arguments, investors elected Koffey and Michelle Brennan to the board last yr.
But improvements in corporate governance fell wanting what shareholders deserved, Koffey wrote within the letter, stating 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 yr’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 yr's session, while the S&P 500 has gained 26 percent during that point. Politan says he has didn’t make meaningful changes to the corporate's leadership, adding that Masimo's board still has no control over CEO Kiani or the direction of the corporate.
The activist believes that if the corporate 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 yr's proxy battle was hard-fought and dear. Masimo took aggressive steps to fend off Politan, including implementing a bylaw that forces the corporate to reveal its shareholder list. Many of those efforts were rejected by a judge in Delaware. Kiani threatened to resign if Koffey was elected.
A Masimo spokesman said in a press release 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 stays CEO and lots of the same issues remain. But on this yr's proxy fight, Kiani sits in considered one of the director positions Politan has his sights set on.
“The shareholders have spoken,” Politan said in his presentation. “But nothing has changed.”
An vital a part of Politans Pitch to shareholders last yr revolved around Masimo's $1 billion Acquisition from Sound United, the owner of high-end audio brands corresponding to Bowers & Wilkins and Denon. Masimos Share price plummeted 37% after the acquisition was announced, and Politan highlighted the 2022 deal for example of what happens under a poor governance structure.
While Kiani continued to assert that the merger would help Masimo bring its medical technology into the house, the corporate said in March that it could address investor concerns and spin off the patron brands.
But the matter is much from settled. Politan wrote in his Wednesday letter that Kiani dissolved the special committee of the spin-off, headed by Koffey, after it rejected or modified “many” of the CEO's demands. For the brand new company, Kiani had demanded licenses for Masimo's priceless mental property, the Masimo name, the corporate headquarters and the jet, in addition to a $150 million capital injection, based on documents from each the activist and the corporate.
Politan argued that the proposed deal would lead to the lack of Sound United and the critical mental property that is crucial 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 price lots of of thousands and thousands of dollars.
Kiani told CNBC earlier this yr that a 3rd party was eager about a three way partnership, but didn’t provide details. Koffey said he and Masimo's board didn’t learn the name of the potential partner until after a preliminary agreement was signed. Shareholders still haven’t been informed.
“Politan wants a separation done right,” Koffey wrote in his letter Wednesday. “We have been calling for a strategic review of Sound United's business and consumer health care spending for over 18 months.”
Politan also identified within the letter that investors have been objecting to the corporate's compensation practices and director selection for over a decade.
Politan found that Masimo has ranked in the underside 0.1 percent of Russell 3000 firms in pay voting because the indicator was created.
Kiani believes he can be entitled to a change of control payout of greater than $400 million if he loses his seat on the board or the corporate completes the spin-off in his preferred manner, based on Applications for approval.
Politan argues that the payout to Kiani is unenforceable under Delaware law and that it could not be triggered by Kiani's removal from the board since the activist offered to reappoint Kiani to an expanded board.
Politan believes his campaign must achieve success because management's intransigence will make it difficult for an additional shareholder to launch the same campaign in the long run.
“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 patron side of the business
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