A proxy battle is heating up that may well determine the future of one of Orange County’s iconic businesses—Masimo Corp. and its founder, Joe Kiani.
A shareholder vote to control the board of directors—including whether Kiani remains on the board—is slated for July 25.
New York-based activist investor Politan Capital Management, which already has two members on the board, has nominated another two. If those directors beat Kiani and Christopher Chavez, four of the six-member board will be linked with Politan.
Kiani, whom Apple Inc. once compared to legendary co-founder Steve Jobs, said he knows what will happen.
“If I’m voted out, they get control of the board,” Kiani said. “I’ve already told the board it would be poor corporate governance to simply come back, and therefore, I would not come back against the will of the shareholders.
“It’s not good because I still have a lot of gas in the tank. There’s a lot more I want to accomplish.”
Masimo, which went public in 2007, is OC’s fifth-most valuable public company with a $7 billion market cap.
Dueling SEC Filings
The two sides in recent months have exchanged a volley of shots at each other in letters to shareholders.
Politan founder and Managing Partner Quentin Koffey has claimed Kiani has repeatedly refused to provide basic information about the company’s performance and held board meetings excluding Politan directors.
“The repeated claim that Politan refuses to engage in settlement discussions is false,” Politan said in a June 3 statement. “We have offered several compromises that would avoid a contested election and allow Mr. Kiani to remain on the board.”
Kiani retorted that “In my view, this guy running this proxy contest has provided inaccurate and incomplete information to shareholders.
“He’s also never told us what he wants—it just doesn’t seem to me that handing control to him would be good for investors.”
On June 20, Masimo filed with the SEC a 23-point rebuttal against Politan’s charges.
The Politan controversy started in 2022 when Masimo paid $1 billion—its largest-ever acquisition—to acquire Sound United, a Carlsbad-based consumer company best known for making audio speakers and headphones under brands like Boston Acoustics, Polk and Bowers & Wilkins.
That acquisition wasn’t well received by investors, which sent Masimo’s shares tumbling; the company’s market value fell $5.2 billion in one day.
The fallout from the stock tumble caught the attention of Koffey, who acquired a nearly 9% stake in Masimo, roughly the same as Kiani’s stake in the business.
Politan last year won a proxy battle that resulted in Koffey and former Johnson & Johnson exec Michelle Brennan joining Masimo’s board of directors.
“It’s clear to us that they have no understanding of Masimo’s business,” said Masimo board members Craig Reynolds and Bob Chapek in a Masimo letter sent last week to shareholders.
Chapek, who joined Masimo’s board in January, was previously at the Walt Disney Co., including a nearly three-year stint as its CEO.
Politan Backers?
Masimo’s letter to shareholders noted that if Politan wins, it would control Masimo with only 8.9% of the shares.
“Worrisome is the prospect of Politan enacting a potentially destructive agenda for Masimo,” Reynolds and Chapek said in their letter. “Politan’s eagerness to discard Masimo’s successful approach to running the company as well as the leadership team that has created value for 35 years highlights what we view as Mr. Koffey’s reckless disregard for risk to stockholders.”
Reynolds and Chapek also said Kiani, whose name is on more than 900 patents, would likely be a highly sought-after executive by other companies.
Masimo has tried to find out who are the investors in Politan, which Koffey began in 2021.
Masimo rewrote its bylaws to require such disclosure; however, a judge in February struck down those requirements as hedge funds aren’t required to identify their investors.
The Wall Street Journal in 2022 reported that a portion of Politan’s Masimo capital comes from EnTrust Global, an investment firm run by Gregg Hymowitz that backs many of activist investors’ biggest bets.
There’s been speculation that Apple, which lost a trade case to Masimo last year resulting in an import ban on some of its watches, is behind Politan and thus trying to stop the legal battles that could cost billions of dollars for the Cupertino-based tech giant.
Masimo has won several big cases in the past two decades, collecting hundreds of millions of dollars in settlements from giant medtech companies Royal Philips Electronics NV and Nellcor, now a unit of Medtronic PLC.
“We want to be clear that Apple is not and has never been an investor in Politan, and we have no involvement with the company whatsoever,” a Politan spokesman told the Business Journal.
Spokesmen for Apple, one of the world’s three largest publicly traded companies with a $3.3 trillion market cap, didn’t return the Business Journal phone calls or emails seeking comment.
Apple’s Thefts
The Apple controversy dates to 2013 when it approached Masimo about working together for the former’s watches.
After a few months, Apple backed out and instead hired about 25 Masimo employees, including Marcelo Lamego, who wanted to become Masimo’s chief technology officer, and Michael O’Reilly, who was Masimo’s chief medical officer.
After Masimo discovered its technology was used in Apple watches to monitor oxygen levels, the medtech company then went on to file suits in two jurisdictions.
Masimo filed a civil case against Apple, seeking $1.85 billion in damages. After a four-week trial last year at the Ronald Reagan Federal Building and U.S. Courthouse in Santa Ana, the jury was hung and a mistrial declared; a retrial is scheduled for November.
In its second track, Masimo won a significant victory last year when the U.S. International Trade Commission ruled in its favor and an appeals court in January upheld a ban on the importation of Apple’s Series 9 and Ultra 2 watch models.
Apple, which has redesigned some watch models to adhere to the ruling, is appealing the ITC decision.
Kiani has said the company may spend north of $100 million on legal bills in its battles against Apple.
In March, Masimo proposed splitting the company in two by spinning off the unit focused on consumer products.
Masimo expects the spinoff to include its consumer audio and consumer health products, including the Stork baby monitor, Freedom smartwatch and hearing aids the company is currently working on. Kiani said Masimo, post-spinoff, will continue to make products for hospitals and doctor offices, long its main source of business, and a more profitable business than the consumer division of late.
Kiani last week defended the $1 billion purchase of Sound United, saying it paid one times revenue.
“I believe it was the right decision,” he said. “We needed the sales force, the channel, the management who knew how to sell to consumers. Unfortunately, the majority of owners didn’t like it. If they had given us time, I still believe they’d like it.”
The End?
Kiani, who emigrated from Iran when he was 9 years old when he knew three words of English, thought he could invent a better way to measure blood oxygen levels and in 1989 started his company in his garage in Aliso Viejo.
The company’s products, primarily sold to hospitals, leapt in popularity during the pandemic because of their ability to remotely monitor patients. The company forecasts revenue of about $2.1 billion this year.
Politan’s two candidates are former Agilent Chief Technology Officer Darlene Solomon and former Stryker and Dentsply Chief Financial Officer William Jellison.
“I believe a victory by Koffey would throw the company into turmoil,” Kiani said. “If I’m thrown out because of this activist, this succession plan will not stay. I worry for the future of Masimo, and how Politan’s agenda could hurt patient care and shareholder value.”
