Massimo founder and CEO Joe Kiani speaks at a press conference in Bangalore on January 2, 2017.
Manjunath Kiran | AFP | Getty Images
Despite voting in favor of the change at last year's annual meeting, shareholders of the medical device maker Massimo Their governance concerns have gone largely unresolved, according to activist investor Politan Capital Management.
With the 2024 annual meeting just a month away, Politan, who has already won two seats on the board, is looking forward to moving forward. Led by Quentin Coffey, Politan nominated two additional directors to the company's board, saying that without their election, management would continue to operate without oversight. Masimo founder and CEO Joe Kiani said he would not return if shareholders voted him out.
“This is the last opportunity for shareholders to make a real difference,” Politan wrote in a letter to Masimo shareholders on Wednesday, outlining its case to investors ahead of the meeting. CMBC has obtained a copy of the letter and attached presentation.
Masimo, famous for its success in patent litigation apple Watch, was initially targeted by Bullitin last year for what the activist saw as poor management, a lack of independent board leadership, and a flawed acquisition process that took the company away from its core business.
Swayed by Politan's arguments, investors voted last year to elect Coffey and Michelle Brennan to the board.
But the governance improvements fell short of what shareholders deserved, Coffey wrote in the letter, noting that Massimo's board “does not review, approve or review the budget.”
“This results in Mr. Kayani spending whatever he wants and however he wants,” Coffey wrote.
For this year's meeting, Politan nominated Darlene Solomon, former CTO of… AgilentBill Jellison, former CFO at… Striker.
Masimo stock has continued to decline, down 18% since last year's meeting, while the S&P 500 is up 26% during that stretch. Politan says he has been held back from making any meaningful changes to how the company is run, adding that Massimo's board still has no oversight of CEO Kayani or the direction of the company.
The activist says the company could achieve an increase in shareholder value of $10 billion under proper management. Its current market value is $7 billion.
“Fundamentally, what this upcoming vote is about is simple: fixing Massimo’s prolonged and deliberate refusal to allow independent oversight,” Coffey wrote in the final letter.
Last year's proxy battle was hotly contested and costly. Massimo has taken aggressive steps to fend off Politan, introducing bylaws to force the company to disclose its list of shareholders. Many of these efforts were rejected by a Delaware judge. Kayani threatened to resign if Kofi was elected.
A Masimo representative did not immediately respond to a request for comment.
“Shareholders have spoken”
Kiani remains CEO and many of the same themes remain. But in this year's proxy battle, Kayani sits in one of the director seats that Politan is targeting.
“The shareholders have spoken,” Politan said in his presentation. “But nothing has changed.”
A key part of Politan's presentation to shareholders last year revolved around Massimo's acquisition of SoundUnited, owner of high-end audio brands such as Bowers & Wilkins and Denon, for $1 billion. Massimo shares fell 37% after the purchase was announced, and Politan highlighted the 2022 deal as an example of what happens under a weak governance structure.
While Kayani continued to claim that the collaboration would help Masimo bring its medical technology into homes, the company said in March that it would respond to investor concerns and spin off consumer brands.
But this issue is hardly resolved. Politan said in its letter on Wednesday that Kayani had dissolved the company's special committee, which Coffey chaired, after it “rejected or modified several” of the CEO's demands. For the new company, Kayani was seeking licenses to valuable Massimo intellectual property, the Massimo name, the company's headquarters and its aircraft, as well as a $150 million cash infusion, according to filings from both the activist and the company.
Politan argued that the prospective transaction would result in the loss of Sound United and critical intellectual property essential to Masimo's shareholder value.
“It is a transfer of licenses to valuable intellectual property, trade secrets and trademarks that could permanently impair Massimo's valuation and create a future competitor while personally benefiting Mr. Kiani,” Coffey wrote.
Politan also highlighted what she referred to as “heavy compensation” and “lavish” spending by Mr. Kayani, pointing to Caribbean and European vacations on a Massimo business jet and stock pledges worth hundreds of millions of dollars.
The Masimo logo is displayed at Masimo headquarters in Irvine, California, on December 27, 2023.
Mario Tama | Getty Images
Kiani told CNBC earlier this year that a third party was interested in a joint venture, but did not provide details. Coffey said he and Massimo's board were only told the name of the potential partner after an initial deal was signed. Shareholders still have not been informed.
“Politan wants the separation to be done properly,” Coffey wrote in a letter Wednesday. “We have commissioned a strategic review of Sound United's business and consumer healthcare spending for more than 18 months.”
Politan also noted in the letter that investors have opposed the company's pay practices and director selections for more than a decade.
Politan noted that Masimo has ranked in the bottom 0.1% of say-on votes among companies in the Russell 3000 throughout the metric's existence.
Kayani believes he will be entitled to more than $400 million in compensation for a change of control if he loses his seat on the board or if the company completes the distribution in the manner he prefers, according to regulatory filings.
Politan believes that Kiani's payout is unenforceable under Delaware law, and that it will not be enforced as a result of Kiani's removal from the board, given that the activist offered to reappoint Kiani to an expanded board.
Politan says her campaign needs to succeed because the intractability of management will make it difficult for another shareholder to launch a similar campaign in the future.
“For more than two years, Politan has overcome unprecedented obstacles presented by Massimo’s board of directors,” the activist said. “We doubt any shareholder would try to do this again.”
Watch: CEO Masimo Kiani says healthcare investors aren't getting the consumer side of the business
