Embattled Masimo Corp. founder Joe Kiani, who was ousted as chairman, resigned as chief executive last week—making good on his promise to exit the company if he lost the proxy battle against activist investor Politan Capital Management.
Kiani, who filed a suit against the company to claim a $400 million payout, is being temporarily replaced by current board member Michelle Brennan. She was appointed interim CEO effective immediately, Masimo announced Sept. 25.
“I am grateful for the trust of the board and excited by the opportunity to help Masimo continue to grow and lead as an innovation-focused company,” Brennan said in a statement. “As we go through this transition, the board and management team are excited to learn from and work with our employees, while focusing on ensuring seamless service and support for our customers.”
The former Johnson & Johnson executive was elected to the board alongside Politan Managing Partner Quentin Koffey last year after Politan, which owns nearly a 9% stake in the company, won its initial two seats in a previous proxy battle.
Masimo’s long-awaited Sept. 19 annual shareholder meeting resulted in Politan winning another two seats for its nominees Darlene Solomon and William Jellison with 65.6% of the vote, giving the activist investor majority control of the board.
Masimo said it has enlisted the help of Korn Ferry to search for its next CEO with analysts expecting the company to have a permanent CEO by the end of this year.
In the trading session following the Sept. 25 announcement, Masimo shares rose 6% to $133.77 and a $7.2 billion market cap (Nasdaq: MASI).
$400M Payout?
The CEO’s exit marks a dramatic departure for Kiani, who founded the company in his Aliso Viejo garage in 1989. He developed a better way to measure oxygen levels in newborn babies. Kiani improved on the state of the art by reducing the number of false positives, which is particularly critical in preventing blindness in premature babies.
Executives at Apple Inc., which at one time considered buying Masimo, called Kiani the Steve Jobs of the medtech industry. Jobs was famously fired by Apple in 1985 and successfully returned in 1997.
In addition to resigning, Kiani filed a lawsuit against Masimo in an attempt to secure a payout defined in his employement agreement.
He filed a claim in California court seeking declaratory relief that he terminated his employment for “good reason,” according to a Sept. 25 regulatory filing.
The lawsuit says that Kiani would be due about $400 million if terminated by Masimo without cause or by himself for good reason.
The board said it’s currently evaluating Kiani’s resignation notice as well as his lawsuit against Masimo.
Kiani’s resignation came as little surprise to analysts considering Kiani indicated he may leave the company leading up to the shareholder meeting, but it does remove “near-term drama tied to the transition,” according to Raymond James analyst Jayson Bedford.
“We understand the nature of the relief rally as the MASI story is now less messy and investors can return to fundamentals,” Bedford wrote in a Sept. 25 note to investors.
Execs to Stay?
Masimo also reaffirmed its previously issued guidance for the third quarter.
The company projects sales of between $495 million and $515 million, compared to the consensus estimate of $502.2 million.
“We are excited about the strong momentum of the business and its future prospects for growth. We look forward to providing more details on the upcoming third quarter earnings call next month,” Chief Financial Officer Micah Young and Chief Operating Officer Bilal Muhsin said in a statement.
Muhsin in July told the board he had “no intention of remaining with the company” if Politan assumed control.
It’s unclear whether he and the almost 300 engineering employees Kiani suggested would follow behind him will actually resign.
