Joe Kiani’s Tumultuous End at Masimo

Joe Kiani beat overwhelming odds to build a better blood oxygen monitoring device. Kiani, who immigrated in poverty to the United States from Iran as a child, according to Forbes, founded Masimo in 1989.

As an electrical engineer, he grew the Irvine, CA-based company from a literal garage startup into a $2 billion public patient monitoring company, competed successfully against Medtronic in the pulse oximeter market, wasn’t afraid to take on Apple—and won.

But when he tried to push Masimo into consumer electronics, everything changed. Investors found the company’s $1.02 million acquisition of Sound United confusing, to say the least. Politan Capital Management, a 9% activist shareholder, came for Kiani in not one but two consecutive proxy battles.

As the corporate power struggle turned from bad to downright ugly, Masimo engineers began asking one another at the lunch table: Is this Apple’s corporate hit job?

Last week, Kiani was ousted from the board and as expected, his resignation as CEO soon followed. He also filed a lawsuit against the company, seeking declaratory relief that he quit for “good reason.”

Interestingly, however, COO Bilal Muhsin, who had threatened to leave Masimo if Politan won control of the board, appears to be staying put, along with CFO Micah Young. We also have yet to see the mass exodus that had been suggested by hundreds of engineer signatures on a letter endorsing Kiani.

“We are excited about the strong momentum of the business and its future prospects for growth,” Muhsin and Young stated jointly in a company news release Wednesday. “We look forward to providing more details on the upcoming third quarter earnings call next month.”

Michelle Brennan, a Politan board nominee in the first battle between the activist investor and Masimo management, has been appointed interim CEO. Brennan previously served as a senior executive at Johnson & Johnson for more than 30 years, where she oversaw medical device businesses globally as well as consumer pharmaceutical businesses. At J&J, Brennan scaled multiple businesses to achieve market-leading growth and led efforts to invest in innovation that resulted in successful new product launches.

“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. “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.”

In the same company statement, the board said it is committed to the previously announced review of alternatives for both the consumer audio and consumer healthcare businesses. The board has engaged Centerview Partners and Morgan Stanley as financial advisors and Sullivan & Cromwell as a legal advisor.

"The leadership and consumer business updates are not surprises but this release confirms expectations," Marie Thibault, a medtech analyst at BTIG, wrote in a report Wednesday morning. "We think the reaffirmed guidance should help calm any nerves around an immediate change to core fundamentals of the performance of the healthcare business."

As of press time, Masimo shares were up 5.73% at $133.41.

"We think investors are likely to be encouraged that management turnover appears limited to just Joe Kiani," Mike Matson, a medtech analyst at Needham & Co., wrote in a report Wednesday. "But we remain wary that there could be surprises in store..."