On Eve of Big Vote, Masimo & Politan Make One Last Pitch; Politan Sues Over Vote Manipulation

Despite explosions going off everywhere all around the combatants, Masimo Corporation’s 2024 Annual Stockholders Meeting will in fact take place as rescheduled tomorrow, September 19, 2024. It has been a long and bloody battle to get to this point and it is not entirely clear who will prevail. But both sides took a last shot at reaching out to investors to try and gain their votes.

Politan’s swing was a little more powerful as it announced it would expand its lawsuit in the Delaware Court of the Chancery – with a new party to be sued, based on evidence it uncovered as part of Masimo’s lawsuit against it in California District Court.

See more on this last blast in the proxy war between Politan and Masimo

As the deadline for the annual meeting approached, there have been virtually daily filings and mailings by the parties, as they lob more and more information at investors. Today, for example, there were no fewer than five separate filings collectively between the two parties. And this is happening even though Masimo’s own response to the court admitted that investors are getting fatigued by this battle.

Masimo Shares Fortune Magazine Article Featuring – Who Else? – Joe Kiani

In any event, in a new Schedule 14A filed by Masimo with the SEC and circulated to investors, the company provided investors with a copy of an article published by Fortune magazine on Tuesday, September 17, 2024, written by Diane Brady. This article, titled Founder vs. Activist: A Dramatic Two-Year Battle Over Health-Tech Firm Masimo Comes to a Head This Week, seeks to offer some perspective on companies who find themselves in a battle with activist investors.

While the tone of the article is slightly pro-Masimo management, it included statements that were both pro- and con- for each side, evidently trying to stake out the middle ground between the parties. It is, however, clear that both Masimo CEO Joe Kiani and COO Bilal Muhsin were directly interviewed and quoted throughout the article. Politan declined to directly participate and referred the writer to their published proxy materials.

The Day Everything Changed

There are some interesting tidbits in the story. For example, the article begins by describing the event from 2022 that turned out to light the fuse that led to this explosion of acrimony between the parties – the $1 billion acquisition of Sound United. This was, the writer said, “…the day that everything changed…”

From the Fortune article: “While Kiani knew the acquisition of the consumer audio company by a medical devices company was bound to raise eyebrows, he presumed that Masimo’s track record – and his three-decade-plus tenure at the helm – had earned him the trust of shareholders.”

“To me, the possibilities were compelling,” Kiani told the writer.

Masimo Investors Turned Thumbs Down on Sound United Acquisition; Politan Took Notice

It would turn out to be just the first of Kiani’s miscalculations. Investors, as Strata-gee reported at the time, immediately turned thumbs down – with the stock dropping the day after the announcement of the acquisition by nearly 40%. It has never recovered. It also created an opening for an activist investor like Quentin Koffey and Politan to get involved.

“Koffey viewed the acquisition as emblematic of broader governance issues that put too much power in the hands of Kaini.”

Both-Sides-isms

The article sometimes devolves into a sort of both-sides-isms. Like this statement from the Fortune article: “Koffy accuses Kiani of running his public company like a private fiefdom; Kiani says Koffey has been duplicitous in his communication to shareholders and unwilling to engage with management, coming to the table with no plan but to make a name for himself and his young hedge fund.”

But one thing the article states quite plainly: “Kiani characterizes this week’s vote as a referendum on ‘the future of Masimo,’ vowing to leave if Koffey wins.” And to make sure readers saw this, writer Brady repeats the same vow later in the story. And then, in a direct quote from Kiani, the threat gets repeated YET AGAIN in the last line of the story.

One More Opportunity to Threaten Investors by Kiani

Since Masimo sent this article to investors, it can only be assumed Kiani wanted one more shot at scaring them, in the hopes that – shivering in their booths – they will line up to vote for management’s slate of directors (which includes Kiani).

The Fortune writer rhetorically asks, “How did a proxy fight escalate to become a battle with such high stakes…” She answers with, “Part of it may be the nature of shareholders activists, who typically try to force boards and management to do things they don’t want to do, the better to raise the share price and make good on the activists’ bets”…”Another factor is the passion, the pain, and possibly the hubris of Masimo’s founding CEO. After 35 years, Joe Kiani believe that no one but him – and the people he’s chosen – can run this company.”

The writer goes on to conclude that many investors agree with Kiani. I think she needs to talk to some more investors, from what I hear, many of them agree with Koffey and Politan.

Politan Throws a Couple of Punches, One’s a Doozy

Politan released excerpts from a new report issued by Glass Lewis, a prominent investors advisory firm – or as Politan calls them, the “leading proxy advisory firm.” Glass Lewis says unfolding developments at Masimo since it last recommended investors support Politan’s Board candidates, have only served to convince it to reiterate its initial recommendation. Glass Lewis says investors should elect nominees Darlene Solomon and Bill Jellison to the Masimo Board of Directors.

Before I share the details of what Glass Lewis had to say, I have to share with you I was struck by the more aggressive tone of its take on the Sound United business. In multiple references to the audio division at Masimo, Glass Lewis speaks of it as the, “much maligned consumer millstone“…or, “a costly non-core boondoggle“…or, “…the original value-destroying transaction….[which] remains in an unchecked tailspin.”

So why does Glass Lewis want to reiterate its initial advice? The advisor listed several reasons why more independent oversight is needed at Masimo, now more than ever…

Reasons Why Proxy Advisory Firm Glass Lewis Says Investors Should Vote for Politan Candidates

>”[W]e remain decidedly concerned with the efficacy of Masimo’s status quo oversight architecture. We further maintain investors should have exceedingly limited confidence in the existing board’s ability to credibly advance a thoughtful and independent review of key strategic alternatives, including a separation of Masimo’s much maligned consumer millstone.”

>”[W]e also continue to believe Politan’s nominees…represent a sound substitute here, and would go a long way to ensuring the interests of all investors are clearly and consistently represented at a particularly critical juncture for the Company.”

>”[A]s it relates to the possible departure of a wider swathe of Masimo employees, we find it rather disconcerting that the board continues to rely on a speculative letter which subsequent filings – including, among others, an internal Masimo email – suggest was viewed as compulsory and coercive by an indeterminate number of Masimo staff members.”

> As far as Masimo’s claim that Politan has no plan, Glass Lewis finds this particularly rich “given [that] long-term Masimo investors are still reeling from the legacy board’s willingness to endorse a costly non-core boondoggle from which the Company has not yet recovered… Perhaps more alarming in this context, Mr. Kiani has remained largely unrepentant regarding the arrangement…”

There were several more reasons Glass Lewis feels the only reasonable option for investors is to select the Politan nominees for the Board, but you get the picture. In fact, I’d say that the viciousness with which Kiani and Masimo management has fought to try and entrench themselves has only made it more obvious to outside investors that change is even more critically needed.

Politan Tells the Chancery Court That Masimo Board & Kiani are in a Voting Conspiracy with RTW Investments

I think the biggest news today is that Politan has told Delaware’s Court of Chancery that it has obtained evidence that Joe Kiani is conspiring with RTW Investments LP (RTW) to engage in a new “empty voting” scheme to try and use this illicit method to essentially steal the vote from legitimate investors. It is amending its existing action before the Court to reflect this new evidence.

Politan is also now suing RTW along with Masimo to eliminate RTW’s vote. You may recall that originally, Masimo’s 2024 Annual Stockholders Meeting was scheduled to be conducted on July 25, 2024. But as the date was approaching, Politan detected suspicious voting patterns – the “empty voting” scheme and alerted the Masimo Board of his suspicions that someone was attempting to “manipulate the outcome” of the voting process. You can read more on empty voting in my previous article at this link… Koffey insisted the Board investigate, set a new record date, and move the meeting back.

The Board denied any involvement in the scheme by Kiani, the “non-Politan” Board members, and members of management. But they ultimately agreed to push the meeting back. That was when it was scheduled for September 19, 2024.

Politan Detects Another Attempt to Manipulate the Vote by Kiani Friend RTW

Now Politan says it has detected another attempt to disenfranchise investors through another “empty voting” scheme. The company says that the culprit is, once again, RTW Investments, an investment group run by a friend of Joe Kiani.

Politan also says that, as part of discovery in the lawsuit Masimo filed against it in California, it has obtained evidence of the previous empty voting program, the Board’s knowledge of it, and Joe Kiani’s direct involvement in trying to manipulate the proxy vote to favor the company’s Board nominees. It also has obtained new evidence that the company is engaging in a new empty voting scheme.

From its filing with the court…

This action arises out of Masimo Corporation’s (‘Masimo’) Chairman and Chief Executive Officer, Joe E. Kiani’s last-ditch attempt to maintain his control over Masimo by manipulating the corporate machinery and impeding the stockholder franchise in advance of the annual meeting scheduled to take place on Thursday, September 19, 2024. Those efforts have included colluding with his allies at RTW on an illegal ’empty voting’ scheme through which RTW has obtained and voted a substantial number of shares for which it has no economic interest in a manner that may determine the outcome of the election.

From Politan Chancery Court Filing: Plaintiff’s Motion for Leave to File Second Amended and Supplemented Verified Complaint

A Highly Inappropriate Manipulation of the Shareholder Franchise

Politan noted that proxy advisory firm Glass Lewis commented on the previous incident back in July, when Masimo denied any involvement in the scheme. Glass Lewis said that “…if additional evidence emerged demonstrating Masimo was aware, it would be a ‘highly’ inappropriate manipulation of the shareholder franchise and a severe indictment of Masimo’s credibility and corporate governance.”

Now Politan reveals that, “Discovery in the California action commenced by Masimo has confirmed that is precisely what happened.”

Politan Says It Has Evidence Kiani & RTW are Again Manipulating the Vote in Their Favor

New evidence, Politan says, shows that they are at it again. “[V]oting data made available to Politan today shows that in the last twenty-four hours, RTW voted 4.6 million shares – which, combined with the approximately 600,000 shares that Politan believes RTW voted previously, amounts to nearly 10% of Masimo’s outstanding shares – in favor of Mr. Kiani and the Masimo Slate. However, the vast majority of these shares are those for which RTW has no economic interest.”

Politan is requesting an Order from the Court declaring that any votes cast by RTW that exceed RTW’s economic interest in the Company are invalid, in the event Masimo’s stockholders are disenfranchised by RTW’s empty vote.

So Tomorrow’s Vote Might NOT Be the End of This Proxy Fight

For the last couple of weeks, I was looking forward to the meeting tomorrow and the end of this battle. It might be over. I suspect if Politan prevails, the battle will be over and a new reality will take hold at Masimo headquarters.

However, if Politan loses the vote tomorrow, I suspect it will intensify its push at the Court of Chancery in Delaware. Remember, even though Masimo is based in California, it is a Delaware-registered corporation and subject to that state’s corporate laws.

Can Politan Get Another Bite at the Apple?

If Politan’s arguments prevail in Court, then the Court could nullify RTW’s votes and perhaps give Politan another bite at the apple with another opportunity to amass the total votes needed to win.

Learn more about Politan Capital Management at politanmgmt.com.

See all about Masimo at masimo.com.