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Masimo Gets Nearly $1B Offer for Consumer Unit

Masimo Corp., which is engaged in a bitter proxy battle, said an undisclosed bidder is offering between $850 million to $950 million for a majority stake in its consumer unit that it may spin out. 

The potential buyer provided a non-binding term sheet agreement and said other investors might be interested as well, according to a Masimo 8-K filing on July 8th. The offer is just under the $1 billion Masimo paid back in 2022 to acquire Carlsbad’s Sound United’s audio and home entertainment products, which makes up the bulk of the consumer unit. Masimo said it intends to seek a higher price. 

“This update still looks more positive than concerning,” Piper Sandler analyst Jason Bednar said in a note to investors. 

The announcement came at a time when Masimo released second quarter revenue that showed the consumer unit continuing to have a double-digit decline in revenue. Shares in the company (Nasdaq: MASI), which had a market cap of $5.7 billion at press time, fell 2% following news of the potential joint venture. 

It also came before a hotly contested proxy battle on July 25th where the fate of Founder, Chairman and Chief Executive Joe Kiani is on the line. 

Activist investor Politan Capital, which already has two board seats, is seeking two more on the six-seat board, which could result in the removal of Kiani. 

Empty Voting? 

In recent weeks, Masimo and Politan have exchanged accusations. 

Politan alleged an unnamed hedge fund investor, who is a friend of Kiani, of accumulating a 9.9% position in the stock, several multiples higher than previously reported. The shares were then sold after the June 13th record date, thus resulting in a technique called “empty voting,” Politan said. 

“This practice threatens to distort corporate democracy, since its essentially a way to vote without any ‘skin in the game.’ We have consulted numerous academics and proxy contest experts and “none have seen empty voting abused on this scale in a proxy contest,” Politan wrote. 

Politan said it’s seeking a different record date so as to not disenfranchise shareholders. 

Craig Reynolds, Masimo’s lead independent director, retorted in a letter that Politan’s argument was “disingenuous” because the board had already said it was investigating the matter. He also said neither Kiani nor anyone else has ever had any agreement or understanding with investors on such a practice. 

Reynolds also rejected changing the record date, saying that “observing a large number of shares” cast for Kiani’s slate “is not a compelling reason to change a properly established record date, which would disenfranchise Masimo stockholders.” 

Q2 Results 

To avoid the proxy battle, Masimo in March proposed spinning off its consumer unit that caused turmoil among investors. Sales at that unit fell 13% to $152 million while healthcare revenue increased 22% to $344 million in the second quarter, Masimo revealed last week in a statement on preliminary results. 

Overall, revenue rose 9% to $496 million. Masimo is expected to issue second-quarter results on August 13. 

The company saw revenue increase for its core healthcare business partly due to sensor utilization and hospital census improving from last year. 

“We are excited to see the growth and strength of our healthcare business in the second quarter combined with a very strong order backlog as we enter the third quarter,” Kiani said in a statement. 

“We achieved a record 

second quarter in terms of converting customers to our technologies with an expected $134 million of incremental contract value, which is the best sign of a healthy future for Masimo.” 

Piper Sandler last month upgraded Masimo’s stock to overweight, saying that the company is “taking steps to return the business to pre-COVID Masimo.” 

Among the steps is a steady stream of upcoming product innovations, including the Radius VSM, a bedside continuous monitor, and a next generation Root patient monitoring platform that the company expects will get Food and Drug Administration approval by the end of this year. 

“We think the scenario setup here skews positively for equity holders regardless of what unfolds with the pending Consumer separation and the upcoming shareholder meeting,” the firm said in a June 3 report. 

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