In a Dispute About Sound United, The Parties Don’t Sound United
Masimo Corporation (Nasdaq: MASI) announced on Monday that it could confirm that activist investment group Politan Capital Management – whose founder and Chief Investment Officer is Quentin Koffey – has provided it with notice of its intent to nominate two candidates to stand for election to the company’s Board of Directors at its upcoming 2024 Annual Meeting. This action by Politan, management says, “run[s] counter to the stockholders’ best interests…”
Oh-oh…the knives are coming out…
See more on Masimo’s response to Politan and Koffey
Masimo management offered a stern rebuttal to several allegations put forth by Politan Capital Management and its CIO Quentin Koffey when Politan issued a public notice and SEC filing to put the company on notice it will seek to offer two more nominees for election to the Masimo Board of Directors at the upcoming 2024 Annual Meeting. If successfully elected, this would mean that Politan will have a total of four directors, a majority of the Board, that are there due to its efforts.
Activist Investor on the Cusp of Taking Control of the Board
As I mentioned in my post last week, this action is a clear escalation of the battle for just who will control the strategy and direction of Masimo. Koffey has made it clear from the beginning that he believes that Masimo CEO Joe Kiani’s decision to acquire Sound United for around $1 billion was a mistake that has muddled the mission of a formerly successful professional healthcare products manufacturer, distracted management and employees with the issues of a non-adjacent consumer audio products business, and diminished the value of the stock being held by many long-time investors.
Koffey’s 2023 proxy battle to obtain two seats on the Masimo Board of Directors turned out to be a fairly easy win as investors clearly sided with Politan in its assertion that the company had lost its way in a costly diversion by the CEO to the detriment of investors. Now, Politan wants more and by offering two more nominees for the Board, it is on the cusp of taking a majority of the Masimo Board.
Koffey Has Many Complaints about Chairman & CEO Joe Kiani
As Politan began the proxy battle anew, it again came out swinging, “alleging Board dysfunction, uncooperative management, and says Kiani’s desire for control ‘is troubling.'” That last point is a bit rich and may be an example of projection, as clearly Koffey too has a great “desire for control” of Masimo. Koffey went on to make several specific allegations of management interference with the new directors, saying, “Chairman & CEO Joe 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 added: “Information is controlled tightly by the Chairman & CEO and almost never shared. As a result, no independent director knows basic facts such as what COGS, SG&A or R&D dollars are actually spent on. There is no budget approval process by the Board, thereby allowing the Chairman & CEO to spend however much he wants on whatever he wants without Board review, authorization or even knowledge.”
The narrative laid out in the Politan announcement and filing was pretty damning and seemed designed to raise serious doubts in the minds of investors as to CEO Kiani’s leadership.
Masimo Management Fights Back
Now we get the pushback from Kiani and company management which offers a determined denial of Koffey’s claims. In fact, Masimo’s latest statement and filing issues a point-by-point refutation of each and every one of Koffey’s allegations, suggests Koffey’s lack of understanding of what he’s been provided is “concerning,” and provides a full exhibit of the titles of documents provided to Koffey and Michelle Brennan, as well as a list of executives that Koffey has met with and has ongoing access to.
But first, Masimo’s document started by calling out what it says are Politan and Koffey’s true intentions. When the first two Politan nominees – Koffey and Brennan – were elected to the Board, Koffey “claimed to be seeking a minority voice on the Board from which to offer input and direction.” Yet the reality, Masimo says, is that “Koffey has always been intent on taking control.”
Kiani: Koffey Does NOT Want an Independent Board, He Wants a Politan-Controlled Board
Furthermore, management says, while Koffey suggests “he desires an ‘independent’ Board…” from his “continued attacks” and “misleading claims” it appears that what he truly seeks “is a Board that agrees with him.” In fact, Masimo says, until Koffey gets a Board that agrees with him, “he will continue to claim the Board is not independent.”
It helps the reader to understand that there has been tremendous turnover on the Masimo Board of Directors in the last nine months – a majority of the Board (two-thirds) has turned over during this period. Not only has Politan’s nominees replaced two previous members of the Board, but two other former Board members left the Board as well. This forced Masimo to seek replacements, hiring a search firm to find two additional qualified Board members that management says had no previous relationship or connection to Kiani (or Masimo) and therefore (Masimo management says) are truly independent.
Masimo stockholders and the hundreds of millions of people who depend on Masimo innovation cannot afford the destructive and chaotic path that Mr. Koffey continues to pursue, even as the Company endeavors to separate its consumer business.”
Statement from Masimo management
Key Politan/Koffey Claims and Masimo Management Pushback
The statement from Masimo is a long one as they go through point-by-point. But below I highlight a few examples of the direct rebuttal offered by Masimo management to Politan’s and Koffey’s claims. This allows you to see that, clearly, there are two sides to every story.
Politan Claim – “…repeatedly held Board meetings excluding us…” Masimo Response – “Mr. Koffey and Ms. Brennan have been invited to and attended all 11 Board meetings held since they joined the Board, along with all respective committee meetings. Mr. Koffey also attends Nominating, Compliance and Corporate Governance Committee meetings as an invited guest.”
Politan Claim – “…denied access to management…” Masimo Response – “Mr. Koffey has had numerous discussions with Masimo’s CEO and CFO both inside and outside of Board meetings and has met with nearly every member of senior management. A list of the members of senior management Mr. Koffey has had discussions with is attached as Exhibit B. In addition, as part of their on-boarding, Mr. Koffey and Ms. Brennan spent a day at Masimo with Mr. Kiani and others where they discussed the Company’s history, technology, and vision for the future. They received an extensive tour of the Company’s Discovery Lab and Home Health Lab.”
NOTE: The company also provided an “Exhibit B” that listed every company manager that Koffey has personally met with. There were a total of nine C-level and Senior Director level managers on the list.
Politan Claim – “…Chairman and CEO Joe Kiani refused to give us basic information…” Masimo Response – “Quentin Koffey and Michelle Brennan have received thousands of pages of documents, including historical Board books and minutes and a substantial number of additional documents and analyses provided at Mr. Koffey’s request. A list of some of the documents and information Mr. Koffey has been provided is attached as Exhibit A.”
NOTE: The company attached an “Exhibit A” that shows a long list of documents provided to the Politan-nominated Directors. That list showed that the company provided the new directors with no fewer than 154 documents.
Politan Claim – “…no independent director knows basic facts such as what COGS, SG&A or R&D dollars are actually spent on…” Masimo Response – “Mr. Koffey is a member of the Audit Committee with full access to the CFO, CAO and internal and external auditors, which allows him to review the detailed financials and ask questions regarding spending. Further, all Board members have been provided detailed financial and operational information related to Masimo’s consumer and healthcare businesses. Mr. Koffey has been provided with a significant amount of information relevant to these topics and has had numerous discussions with Masimo’s management team and the Board’s advisors on these subjects. For Mr. Koffey to admit to not knowing basic facts about the Company is concerning.”
Will Investors Side with the Devil They Know, or the Devil They Don’t Know?
The statement from management goes on like this refuting each and every allegation from Politan. As an outside objective observer, this kind of he said/she said situation makes it virtually impossible to determine who is right. For example, while Masimo management provides a long list of documents it has provided Koffey, we don’t know if there were others that Koffey requested to which the company did not respond.
Ironically, both sides could be right at the same time…it’s a matter of perspective. One thing is becoming clear – if Kiani was caught off-guard by the Politan approach initially, he appears ready and able to fight back this time.
It all comes down to whom the investors believe: the devil they know (Kiani)…or the devil they don’t know (Koffey).
Learn more about Masimo by visiting masimo.com.
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