Company Chooses to Delay Annual Stockholders Meeting & Set New Record Date
Masimo Corporation (Nasdaq: Masi) announced on Tuesday that it has filed a lawsuit in Federal Court in California against Politan Capital Management and CIO Quentin Koffey, asking the court for an injunction to force Politan “to correct material misstatements and omissions”…in its “proxy materials.” It also says it has set a new date for its 2024 Annual Meeting of Stockholders, with a new record date, “to ensure that the vote of the Company’s stockholders is fair and fully informed.” That move is clearly in reaction to evidence uncovered by Politan of a legal but ethically questionable move called “empty voting” in an apparent attempt by an individual who is a friend of Joe Kiani to swing the vote in management’s favor – a move that Politan says would disenfranchise investors who voted.
See the latest outburst of filings and accusations between Masimo & Politan
The filings are coming fast and furious from both sides in what is emerging as a potentially epic proxy war between Masimo’s embattled CEO Joe Kiani and those Board Directors loyal to him – against activist investor Quentin Koffey and Politan Capital Management. Control of the company is at stake, as two director seats are open and scheduled to be filled at the upcoming 2024 Annual Meeting of Stockholders…now rescheduled from July 25th to September 19, 2024.
Masimo management has put forth its proposed candidates for those two open seats (one of whom is Kiani himself). Politan has offered its own slate of what it says are independent directors – i.e. not Joe Kiani’s handpicked friends. Whichever side prevails, it will hold a majority of the Board and therefore, control of the company’s direction. As I’ve previously reported, the core issue that launched this battle is a failed acquisition of Sound United that took place back in early 2022.
What’s the Driving Force Behind Today’s Developments?
What I believe is driving today’s news is Poltian’s recent success in developing the narrative that Masimo CEO Kiani and his friend or friends are allegedly trying to steal the Board election. I first told you about that allegation in my post last week.
Two days after my report ran, news emerged on the wire that an independent proxy advisory firm (a company that offers investors and companies advice on proxy matters) called Glass, Lewis & Co., released a really surprising report that was viewed by CNBC who characterized it as a “scathing report” on Masimo and its efforts in this proxy battle.
The Apparent Party Who Engaged in ‘Empty Voting’ is Revealed
But what was really shocking is that Glass Lewis revealed in its report that it had been contacted by an investment company that “reached out for a meeting with Glass Lewis and said it was a 9.9% shareholder supportive of Kiani and management nominee Christopher Chavez.” The Glass Lewis report identified that company as RTW which it says is “a $5.9 billion firm.”
Glass Lewis agreed to meet with them, and then the Politan allegations became public in an SEC filing. Glass Lewis never heard back from RTW and the meeting never occurred. But, as we would learn, the Glass Lewis report goes on to independently confirm Politan’s suspicions about voting manipulation according to CNBC’s report.
Glass Lewis Discovers Evidence that Appears to Confirm Politan’s Allegation of ‘Empty Voting’
The proxy advisory firm said that RTW’s publicly reported position versus the 9.9% position it privately disclosed to Glass Lewis ‘appear to align with certain of the concerns raised by Politan in the letter.’
Kiani, in a testimonial on RTW’s website, described the fund as a decades-long ‘trusted partner.’
CNBC, ‘Proxy advisor backs activist Politan nominees in scathing Masimo report’
In other words, Glass Lewis says its brief interaction with RTW, along with its investigation into RTW’s publicly reported Masimo stock holdings, and apparent deep relationship with Joe Kiani, appear to suggest that Politan’s allegation of Kiani orchestrating an “empty voting” scheme to swing the vote in managements’ favor may have actually occurred.
Politan Pounces
Politan pounced on this news and quickly put out a press release about the Glass Lewis endorsement of Politan’s nominees to the Board, and its criticisms of Masimo’s CEO and management. Politan’s release revealed the following items (among many others) from the Glass Lewis report about Masimo.
- …[W]e believe the most exigent near-term impetus supporting the election of Mr. Jellison and Dr. Solomon [the Politan Board nominees] is the need to ensure a thorough and independent assessment of the prospective separation of the consumer segment.”
- “Though these factors would already seem to demand swift investor action to remediate faults Masimo declines to acknowledge, much less proactively address, we consider the stakes to be raised substantially higher here, given a potentially high-consequence environment inextricably linked to what presently appears to be a functionally unchecked separation effort spearheaded by Mr. Kiani.”
- “Politan much more persuasively highlights a meaningful series of concerns in relation to Masimo, including, among others, continued failures to hit stated several key operational targets by wide measures (which circumstance notably also substantially erodes the credibility of Masimo’s long-stated but never achieved goal of 30% operating margins), deteriorating capital efficiency, muddled operational messaging (e.g. inconsistent commentary on COVID tailwinds/headwinds) and, disconcertingly, discounting/channel stuffing in the run-up to the 2023 contest (leading to a damaging revenue miss and dubiously convenient self exculpation by Mr. Kiani in the first earnings report after the proxy fight).”
- “We believe investors have no reason to believe the existing board is prepared to thoroughly and independently monitor this [separation of Sound United] process.”
- “We believe these factors, taken together with what we consider to be a restricted, myopic and poorly monitored process, already represent clear and compelling cause for investors to support a further reconstitution of the board at this time.”
- Regarding “letters of support” for Mr. Kiani released by the company: “…[T]his letter was viewed as coercive by an indeterminate number of Masimo employees who felt pressured to endorse Mr. Kiani. We consider these materials hardly bear the hallmarks of organic support.”
- “…[W]e consider Politan has advanced two highly credible, capable nd independent candidates bringing to bear appropriate experience and expertise suited to the battery of oversight issues which continue to hamper Masimo.”
A Second Investor Advisory Group Endorses Politan’s Board Candidates
Another independent proxy advisory firm, Institutional Shareholders Services, Inc. (ISS) has also issued its own report that echoes many of the same Glass Lewis points. One of the more pertinent points:
“Moreover, like last year, Kiani and his cohort have adopted defensive rhetoric that reflects disregard for shareholders. In summary, they have continued their established pattern of presenting arguments that they apparently think will resonate with the investor base, but that crumble under basic scrutiny. This is just further evidence that the board is not currently configured to promote accountability to shareholders.”
ISS, like Glass Lewis, strongly endorses Politan’s actions in attempting to reform the Masimo Board and advises MASI stockholders to vote for the Politan independent Board nominees. The public emergence of these two critical independent reports backing Politan and criticizing Joe Kiani and the legacy Masimo Board has provided a bit of a turbocharge to Politan’s efforts.
Pressure building, Kiani and the Board felt it needed to do something.
Masimo Decides to Do Something About Politan’s Positive Momentum
Tuesday morning, Masimo announced it had commenced litigation against Politan Capital Management in Federal Court in California. In its announcement, the company says it will ask the court “to require Politan to correct material misstatements and omissions in Politan’s proxy materials.”
The company also claims “…that Quentin Koffey has assisted plaintiff’s counsel in litigation against Masimo.” If true, this would be quite surprising, as Koffey is a member of the Masimo Board of Directors. However, I have seen nothing about this development publicly other than its inclusion by Masimo in the announcement of this action.
Masimo Board Changes Meeting Date and ‘Record Date’
The company’s Board of Directors has set a new date for the 2024 Annual Meeting of Stockholders as September 19, 2024, at 2:00 pm. Pacific Time. The new “record date” (the “record date” sets the cutoff date to determine which stockholders get to participate in the voting process) is August 12, 2024.
Why did Masimo decide to postpone the meeting and set a new record date? Improbably, the company says it was “…to accommodate a request by Politan to set a new record date for the Annual Meeting.” Even I lol’d when I read that statement. As I reported last week when Politan noted the voting irregularities and demanded a new record date for a new vote, lead independent Director Craig Reynolds immediately denied that request.
Masimo’s announcement also separately claimed that it took these actions “…to ensure that a vote of the Company’s stockholders is fair and fully informed.” Is this a sincere sentiment? Or does it result from the “empty vote” scheme being exposed and tied to a friend of Joe Kiani?
Politan Punches Back
Almost immediately, Politan punched back. Literally, as I was writing this post, a new press release from Politan was circulated that was concise, direct, and hit hard. Titled, “Politan Comments on Masimo’s Latest Entrenchment Manuevers,” it got right to the point.
On Monday, ISS wrote that Masimo, ‘has a corporate governance track record that is firmly among the most troubling of any modern public company,’ and that CEO and Chairman Joe Kiani, ‘has demonstrated that he has no regard for public shareholders. He has been at the center of so many corporate governance scandals and abuses that no credible argument exists to the contrary.’ Today’s actions are more of the same.
Quentin Koffey, Press Release: ‘Politan Comments on Masimo’s Latest Entrenchment Manuevers’
A Desperate Attempt to Prevent Shareholders’ Voices From Being Heard
Koffy goes on to add that in reality, this move by the company “…is not about Politan’s proxy materials. There are no misstatements.” The Politan CIO added, “Politan has never had any contact with ‘plaintiff’s counsel’ involving litigation against Masimo and does not even know what Mr. Kiani is referring to.”
No Koffey says, pushing the annual meeting – which was scheduled to take place in just nine days – back another two months “is nothing more than a desperate attempt to prevent the voices of Masimo’s shareholders from being heard.”
Koffey: This is All About Management Creating Impediments to Delay the Shareholder Vote
Koffey went on to note that the company’s bylaws, not to mention Delaware law, require that every company hold an Annual Meeting within 13 months of the last one. Politan maintains this meeting could have been scheduled on August 5 with no issues.
As far as this new lawsuit against Politan and Koffey, he says: “…the retaliatory legal action taken against Politan is another example of this [creating impediments to moving forward] and is completely without merit. We are confident it will be defeated.”
Denying shareholders a timely election and pursuing frivolous litigation against a shareholder all in an effort to push off a vote after the leading proxy advisory firms both supported Politan only confirms that Mr. Kiani’s affiliated directors Bob Chapek and Craig Reynolds are not independent and will support Mr Kiani no matter how detrimental his behavior is to Masimo.”
Quentin Koffy
Koffey Promises Shareholders He Will Not Be Deterred by Kiani’s & The Board’s Actions
Finally, Koffey wants shareholders to know that he has no intention of letting Kiani and Masimo legacy directors get away with this move – which he refers to as an entrenchment maneuver.
“Most importantly, Politan will take all necessary action to ensure that the Annual Meeting is not delayed any further beyond September 19 and hopefully is held sooner,” Koffey vowed. “Ultimately, this last-gasp attempt to block shareholders’ rights will fail – just like all the Board’s previous attempts over the past two years. We look forward to moving past these misguided distractions and helping to start a new chapter for Masimo.”
Politan Offers Shareholders a Strong Message
That’s a strong message and undoubtedly a bit of fresh air to shareholders, many of whom are frustrated by a management that does not seem to hold the slightest care about shareholder concerns.
The upcoming Board elections may change all of that…
In the meantime, a directionless Sound United twists in the wind…
Learn more about Masimo at masimo.com. Masimo proxy materials at protectmasimosfuture.com.
See all about Politan at politanmgmt.com. Politan proxy materials are here advancemasimo.com.
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