Masimo Faces Second Proxy Fight in Wake of a Major Announcement

Just as it appeared things were calming down at Masimo, the company’s activist investor has nominated two more board director candidates. Faced with a second proxy battle in as many years, Masimo revealed plans to separate its controversial consumer business.

The Wall Street Journal reported Sunday evening that activist investor Politan plans to nominate two more director candidates to Masimo’s board – news that Politan confirmed Monday. The move came just two days after the company revealed plans to separate its controversial consumer business.

Last year, Politan won a heated proxy war against Masimo, resulting in the election of Michelle Brennan and Quentin Koffey.

“I won’t lie, it’s been a rough start with the new board members. But we’re managing ... we’re getting along better. We’re finding more common ground,” CEO Joe Kiani told analysts in late February during an earnings call.

Kiani founded Masimo in 1989, growing the company from a literal garage startup into a public patient monitoring company making more than $2 billion a year.

Before the shareholder election, Masimo’s board members had served for five years or more. Now, Kiani said, there is just one board member with a tenure of more than a year, while the rest of them have only been seated for a few weeks to a few months.

Koffey said he had been optimistic that he and Brennan could work productively with the rest of the board to drive positive change.

“Unfortunately, our efforts were continually rebuffed ... Kiani refused to give us basic information, denied us access to management, repeatedly held board meetings excluding us, and refused to even consider allowing any review of capital allocation or strategy,” Koffey said. “... Politan has serious concerns given the lack of basic governance and oversight we have observed since joining the board. Information is controlled tightly by the chairman and CEO and almost never shared.”

According to Koffey, no independent director on Masimo’s board knows basic facts regarding what things like R&D dollars are spent on. He said there is no budget approval process by the board, allowing Kiani to spend “however much he wants on whatever he wants” without board review, authorization, or knowledge.

This level of control exerted by Kiani is “troubling,” Koffey said, but he also chided the current board for allowing it to occur.

“A rushed Friday afternoon announcement that the company was exploring the separation – which came after being informed that Politan intended to nominate directors this week – only further confirms our concerns,” Koffey said.

While the activist investor appears to be in favor of splitting the business, Koffey expressed concerns about how the separation will be executed.

“It is clearer than ever that a majority of truly independent directors are needed at Masimo, especially given the critical importance of not only ensuring the company follows through on its announcement to evaluate the separation, but also to make sure it is done right,” Koffey said.

If Masimo does indeed spin off its consumer business, Koffey said there would need to be vital considerations around the allocation of Masimo’s intellectual property and the control of the spin off company.

“We have serious concerns that Mr. Kiani, without proper oversight, will seek to push through a spin-off with poor corporate governance and IP arrangements where assets are allocated in such a manner designed to maintain his control and influence of both separated companies,” Koffey said.

Politan said it worked with an independent search firm to identify two directors with “crucial expertise” needed on the board.

Darlene Solomon, PhD, is a scientist by training who recently completed a 39-year career at Agilent Technologies where she held a number of leadership roles, including chief technology officer and senior vice president.

William “Bill” Jellison is a veteran medtech executive and finance expert with decades of relevant experience, according to Politan, including as the former CFO at Stryker.

Masimo said it expects the proposed separation of the business will include its consumer audio and consumer health products, including the Stork baby monitor and the Freedom smartwatch and band. Masimo would presumably retain its professional healthcare and telehealth products. The company noted that it expects that this will improve the profitability of the healthcare business.

“I truly believe there is tremendous opportunity to increase not just the lifespan but the healthspan of people by taking healthcare into the home,” Kiani said. “We have unique and necessary technologies to make what I’ve been calling 22nd Century healthcare happen in the next few years. I proposed a separation of the consumer business in January and the board has agreed to move forward. This approach is expected to maximize shareholder value as well as give both Masimo healthcare and the new consumer business the best path for success.”