In one of the most shocking moves in Orange County’s business history, Masimo Corp. shareholders voted Sept. 19 to oust Joe Kiani as chairman of the company he founded in 1989.
Shareholders elected former Agilent Chief Technology Officer Darlene Solomon and former Stryker and Dentsply Chief Financial Officer William Jellison to the board, beating out Masimo’s nominees Kiani and Christopher Chavez, according to activist investor Politan Capital Management, which cited a preliminary analysis by Poltian’s proxy solicitor.
At press time, Masimo hadn’t confirmed the vote. A day after the vote, a Masimo spokesman said the company wasn’t commenting.
Solomon and Jellison are set to join Politan founder and Managing Partner Quentin Koffey and former Johnson & Johnson executive Michelle Brennan, who joined the board after Politan won a previous proxy battle last year.
“While each of us is independent and brings our own unique perspectives, we are united in our enthusiasm for Masimo’s future as a leading, innovation-focused growth company,” Solomon, Jellison, Brennan and Koffey said in a joint statement.
“We look forward to meeting with, learning from, and working together with the Healthcare and Consumer employees to make Masimo an even greater company.”
Politan, a 9% shareholder of Masimo, now controls four of the six seats on the board of directors.
Originally scheduled for July 25, Masimo delayed the shareholder meeting by eight weeks to give shareholders sufficient time to review revised proxy materials, according to the company.
The company in July announced that it was suing Politan in federal court to “correct material misstatements and omissions in Politan’s proxy materials.”
Shares in Masimo rose 7.2% to $119.75 in trading following the vote. The company had a $6.4 billion valuation at press time.
Employee Exodus?
Prior to the vote, Kiani said if ousted as chairman, he would leave as CEO as would almost 300 engineering employees, including Chief Operating Officer Bilal Muhsin.
“I strongly disagree with the false accusations made by Politan in its recent fight letter and deck and have no intention of remaining with the company if Quentin Koffey and Politan take control of it,” Muhsin said in a letter to the board dated June 26.
Proxy-advisory firm Glass Lewis, which reiterated its support for Politan’s nominees on Sept. 17, dismissed these claims as “threats to disruption.”
“As it relates to the possible departure of a wider swath of Masimo employees, we find it rather disconcerting that the board continues to rely on a speculative letter which subsequent filings — including, among others, an internal Masimo email — suggest was viewed as compulsory and coercive by an indeterminate number of Masimo staff members,” Glass Lewis said in its report.
Politan alleges Masimo on Sept. 13 asked the California Federal Court to postpone the annual shareholder meeting again, and a day later, asked the court to invalidate Politan’s current proxy card, which the court denied.
Politan has nominated Brennan to replace Kiani as CEO should he leave the company entirely.
Masimo in a July statement made its case against the move, citing Brennan’s lack of experience as reason.
“Politan’s stop-gap measure, appointing Ms. Brennan, is farcical: she has no CEO experience, no ability to oversee a large complex company and failed to deliver any options for the Consumer separation while on the Special Committee,” Masimo said in the release.
Kiani’s management of the board has been under scrutiny by Politan and proxy advisory firms.
Koffey has claimed Kiani repeatedly refused to provide basic information about the company’s performance and held board meetings excluding directors.
“We’ve been listening to our shareholders,” Kiani said in a video to investors.
Some shareholders previously requested for the declassification of the board, which means annual election of all directors and which the company enacted last year. The company also said it plans to expand the board up to 11 seats total.
Kiani said he has agreed to no longer recommend anyone to the nominating committee, having referred former Walt Disney Co. executive Bob Chapek in January.
“We’re going to keep listening and we’re going to keep adapting and we’re going to grow our business as the public company it needs to be for the next 10, 20 years,” Kiani said prior to the vote.
Masimo was fighting to the very end.
On the day before the climatic vote, the company continued its claim about potential destruction of the company.
“This election is critical to the future of Masimo and the value of your investment in our stock,” according to a website called “Protect Masimo’s Future.” “Masimo believes that ceding control of the Board to Politan will destroy stockholder value.”
The End of a Legend?
Kiani, who immigrated from Iran when he was nine years old when he knew three words of English, thought he could invent a better way to measure blood oxygen levels and started his company in his garage in Aliso Viejo.
The company’s products became famous for reducing faulty readings on the oxygen levels of newborn babies and thus helped reduce deaths and blindness.
Kiani became legendary in the industry, even being called by Apple Inc. executives as the Steve Jobs of medical technology devices.
Masimo, which went public in 2007, reached a market cap of more than $14 billion.
Masimo’s products, primarily sold to hospitals, leapt in popularity during the COVID-19 pandemic because of their ability to remotely monitor patients.
However, the company’s market cap fell $5.2 billion on one day in 2022 after it announced it would pay $1 billion to acquire an audio equipment maker, Sound United, to expand into consumer devices.
Politan cited that purchase as a reason Kiani was out of touch with shareholders.
Kiani’s next moves weren’t publicly disclosed at press time.
Analysts have said Kiani would have several offers to either start up a new company or become CEO of an existing firm.
Four Other OC Companies Facing Scrutiny
• Greg Levin unexpectedly departed late last month after almost three years as chief executive at Huntington Beach-based BJ’s Restaurants Inc. (Nasdaq: BJRI).
Activist investors PW Partners, which had accumulated more than 5% of the shares, and Pleasant Lake Partners, with a 9.5% stake, earlier this year reached agreements with management for a board seat and to supply suggestions on how to improve operations.
Levin, who started at BJ’s in 2005 as chief financial officer and became CEO in late 2021, was replaced on an interim basis by C. Bradford Richmond, who was installed earlier this year as a board director on the recommendation of the Pleasant Lake investors.
In the past, the company has stated goals to reach $2 billion in annual revenue and double store count to over 400. However, revenue increased 3.8% to $1.3 billion in fiscal 2023; analysts expect only an 0.8% increase to $1.34 billion for 2024 followed by $1.39 billion in 2025.
“In my opinion, the activists felt CEO Levin was not approaching cost cuts with an even larger sense of urgency,” Wedbush Securities analyst Nick Setyan told the Business Journal.
The shares, which climbed higher than $60 in 2021, at press time traded around $31.67 and a $769 million market cap.
• Pleasant Lake Partners also earlier this year revealed a 31% stake in Irvine-based Tilly’s Inc. (NYSE: TLYS). While the investor hasn’t publicly revealed plans for the retailer with 247 stores in 33 states, long-time Chief Executive Ed Thomas retired in February.
Hezy Shaked, who founded the company 42 years ago, took on the CEO role on an interim basis before being named as its permanent CEO on Sept. 12.
Shares, which topped $17 each in 2021, were around $5.10 and a $153 million market cap at press time.
• VF Corp (NYSE : VFC), the parent of Costa Mesa-based Vans, which suffered double-digit decline in annual sales in fiscal 2023 and 2024, has come under scrutiny from Engaged Capital, a Newport Beach-based activist fund.
Engaged Capital a year ago started a campaign for VF Corp. to cut costs and explore strategic alternatives. It convinced the company to appoint Caroline Brown to its board last February.
Brown, who has more than 30 years of experience in the apparel industry, including at famous brands like Giorgio Armani, Donna Karan International and Carolina Herrera, resigned from the board on June 3 to become brand president of The North Face, the largest unit at VF Corp.
The retailer also hired Michelle “Sun” Choe as Vans’ new global brand president, starting in July. Choe for the past seven years played a prominent sales role at Lululemon Athletica Inc.
Chief Executive Bracken Darrell, who became VF CEO in 2023, “is putting the key elements of the foundation in place to turnaround the business,” Engaged founder and Chief Investment Officer Glenn Welling told the Business Journal in June.
“He is hiring the leaders needed to run the brands, he is pruning the portfolio to focus on what matters and reducing costs to improve margins and provide financial flexibility to reinvest behind the brands that will drive the majority of the value creation—Vans and The North Face.”
Shares, which reached almost $100 each in 2019, traded at $18.65 and a $7.3 billion market cap at press time.
• When the board of directors at Xponential Fitness Inc. removed founder Anthony Geisler as CEO, the shares plummeted 32% in one day. That drop follows last year’s 38% one-day drop when an anonymous short trader called Fuzzy Panda Research issued a report claiming the company was misrepresenting the health of its franchisees and had omitted past business practices of Geisler (NYSE: XPOF).
On June 17, the Irvine-based chain of fitness clubs announced a new CEO – Mark King, the former CEO of Taco Bell. Shares climbed 34% that day on the belief that King found the underlying business model was sound, analysts said.
At press time, the stock, which topped $33 each last year, traded at $13.44 and a $647 million market cap.
