Masimo Corp. has postponed its July 25 shareholder vote that will determine control of the medical device maker and the future of founder Joe Kiani.
Activist investor Quentin Koffey of Politan Capital assisted a plaintiff “in litigation” against Masimo where he is board member, the company charged.
Masimo, which has postponed the vote to Sept. 19, said its lawsuit in federal court in California is “seeking to require Politan to correct material misstatements and omissions” in its proxy materials.
Politan said the accusation is “baseless,” has never met the plaintiff’s counsel and “does not even know what Mr. Kiani is referring to.” In a countersuit, Politan said its proxy materials are correct, and it says the Irvine-based company is legally obligated to hold its annual meeting within 13 months of the prior event.
“Moving the Annual Meeting – which was scheduled to be held in nine days – back two months is nothing more than a desperate attempt to prevent the voices of Masimo’s shareholders from being heard,” Koffey wrote in a July 16th statement.
It’s the latest tug-of-war that could see the ouster of Masimo Chairman and Chief Executive Kiani from the company he founded in 1989 and built it into one of the world’s most successful medtech companies. Politan two years ago built up an 8.9% stake, similar to the size of Kiani’s position.
During the proxy battle, Masimo shares since April have fallen 26%, a loss of almost $4 billion in market cap. The shares now trade around $108.97 and a $5.7 billion market cap (Nasdaq: MASI).
“Given how much we’ve seen temperatures rise over the past two years since Politan first took their position in shares of MASI, we’ve wondered if there would come a point where certain elements of this process would find their way into the courts,” Piper Sandler analyst Jason Bednar wrote last week in a note to investors.
“We’re also venturing further into uncharted proxy battle waters where we simply aren’t aware of any relevant precedents to rely upon.”
Negative Proxy Reports
Politan, which already has two seats on the six-member board, is seeking two more seats. Politan said it filed the suit on July 17th in the Delaware Court of Chancery against Masimo and three of its directors.
“This postponement followed closely on the announcements by both of the leading proxy advisors, Institutional Shareholder Services and Glass, Lewis & Co., recommending that the Issuer’s stockholders vote for Politan’s nominees at the 2024 Annual Meeting,” Politan said in a statement.
Institutional investors often use guidance from ISS and Glass Lewis on how to vote their shares, including those in mutual funds. ISS said Masimo has a “history of disregard for the investor base” and its management “cannot be trusted.”
In its lawsuit filed July 15th, Masimo accused Koffey of working with law firm Wolf Haldenstein Adler Freeman & Herz LLP, a New York based law firm suing Kiani in a shareholder lawsuit.
Koffey “is believed to have conspired with Wolf Haldenstein against Masimo’s interests,” said the complaint file in the U.S. District Court Central District of California.
“Based on Masimo’s investigation and diligence, including through its advisors, Masimo was recently informed through two confidential witnesses that Koffey has been ‘working closely’ with lawyers at Wolf Haldenstein.”
The lead attorney in Masimo’s complaint is Costa Mesa-based Michele Johnson, a partner at Latham & Watkins LLP where she is the global chair of the Litigation & Trial Department, handling securities and other complex cases. Johnson represented U.S. Soccer Federation when it negotiated a $24 million settlement with players on the women’s national team.
300 Employees to Leave?
Kiani has built a fierce following at the company, which has become a world leader in hospital equipment that measures oxygen and blood levels.
In a letter dated June 26, Chief Operating Officer Bilal Muhsin said he’d resign if Koffey and Politan gain control of the company. Almost 300 Masimo healthcare engineering employees, along with several regional sales managers in Europe, Asia and Australia, have also indicated that they might leave the company under Politan’s control.
A major cause of the shareholder disappointment was Masimo’s $1 billion purchase in 2022 of Sound United, a maker of audio equipment for consumers. The company’s value fell $5.3 billion in one trading session alone following the announcement. Masimo has argued that it can install its medical grade equipment on Sound United’s consumer devices like speakers and earphones.
To avoid a proxy battle, Masimo in March proposed spinning off the Sound United unit, where second-quarter sales fell 13% to $152 million.
Masimo recently also said it’s received an offer to sell the unit for between $850 million to $950 million to an undisclosed buyer and is negotiating for a higher price.
Kiani last month continued to defend the purchase of Sound United.
“I believe it was the right decision,” Kiani told the Business Journal. “We needed the sales force, the channel, the management who knew how to sell to consumers.”
