Politan Wins Tug of War for Masimo Board Seats

Joe Kiani founded Masimo in 1989, growing the company from a literal garage startup into a public patient monitoring company that posted $2 billion in sales last year. Now, Kiani's position at the company is in jeopardy.

After a heated proxy battle between Masimo and Politan Capital Management, shareholders elected both of Politan's nominees – Michelle Brennan and Quentin Koffey. Politan is a 9% shareholder of Masimo – an approximately $800 million investment that makes the firm one of Masimo's largest shareholders.

"We believe this election represents a clear mandate from shareholders that significant change is needed at Masimo," said Koffey, managing partner and chief investment officer at Politan. "We are now fully focused on putting the election behind us and working constructively with the incumbent directors to improve the company's corporate governance, enhance capital allocation, and instill better strategic oversight. We look forward to helping Masimo reach its full potential for all its stakeholders."

In addition to founding Masimo and leading the company for the past 34 years, Kiani co-invented Masimo's pulse oximetry technology to measure blood oxygen saturation. In recent years, Masimo has been embroiled in a patent battle against Apple. But the board room battle with Politan seems to have started after the announcement of Masimo's $1.02 billion acquisition of Sound United last year. Sound United was a consumer audio tech company that operated iconic consumer brands including Bowers & Wilkins, Denon, Marantz, Polk Audio, HEOS, Definitive Technology, Classé, and Boston Acoustics.

"Declining by five times the purchase price, Masimo’s $5 billion drop in market value following the Sound United acquisition was not simply about the transaction," Politan said on its proxy campaign site. "Rather, it revealed shareholders’ concern that no board oversight exists to stop future value destruction."

Masimo warned shareholders on its proxy campaign site prior to the vote that electing Koffey would "derail Masimo and risk the loss of its senior leadership and engineering teams." The company also expressed concern with Koffey's "long track record of instigating CEO change."

Masimo investor questions linger

"We do not feel we have exact details or timelines on what the activist hopes to accomplish, or whether these efforts will be successful," Marie Thibault, a medtech analyst at BTIG, wrote in a research note Tuesday.

She highlighted a handful of key questions she's heard from Masimo investors in recent weeks:

"We understand the frustration with the company's strategy and the push for improved corporate governance practices," Thibault wrote. "But we also think it will be important for [Masimo's] near-term stock performance that the new board nominees can achieve a collaborative relationship with [Masimo's] management team. Without that, we worry about the potential for management upheaval, reactions from those few top shareholders that are loyal to management, uncertainty around near-term guidance metrics, and the possible impact of any distractions on commercial selling efforts and R&D."

The analyst said the best next step is for management and the new board nominees to get on the same page, communicate clear intentions for the corporate strategy, and eliminate uncertainty.