For supporters of the innovative medical technology company Masimo, the current fight over control of the company is a battle between expertise and easy money. They argue activist investor Quentin Koffey of Politan Capital has no strategy to keep the medical advances coming for patients, or long-term returns flowing to investors.
The two-year-old war over Masimo’s future will likely be decided at the annual meeting of stockholders on September 19, 2024. After seeing Masimo grow from a literal garage start-up to one of the top-ranked global companies, founder Massi “Joe” Kiani may lose his spot in the boardroom.
Politan and its allies say the company has been mismanaged by Kiani and his corporate team, and they believe there are more profits to be made. Koffey wants to install two more people on Masimo’s board of directors on Sept. 19, giving Politan a majority. This despite the fact that another board election involving Kiani is scheduled in nine months.
While Koffey and other activist shareholders portray takeover bids as a way to increase a target company’s value, not all experts agree.
“The proxy battles fueled by private equity are motivated not by the existence of an alternative, viable strategic vision of a block of expert investors, but by the allure of profiting from a short-term bump in value created by a change in corporate governance offering lofty promises,” explained economist Daniel Ikenson with Ikenomics Consulting.
Activist investor involvement in companies can lead to positive changes. Outside forces may suggest ways for a company to change strategies as the market shifts. Billionaire activist investor Nelson Peltz spent four years reforming and retooling Proctor & Gamble (P&G) after a successful proxy fight in 2017. He retired after watching the company’s shareholder returns rise 67 percent.
Peltz had a strategy when he mounted his P&G crusade. The same cannot be said about Koffey and Politan’s Masimo plans.
“I don’t know what Politan wants besides to control the board,” commented economist Ike Brannon, a former senior tax policy adviser at the U.S. Treasury.
The longer the fight for control of Masimo has gone on, the uglier it has become.
In documents filed with the Securities and Exchange Commission (SEC), Koffey and Politan accused Kiani of attempting to manipulate a July stockholders’ meeting. Koffey suggested Kiani never showed a budget or regulatory inquiries to board members.
After a recent California federal court decision, it was revealed that Koffey made false claims that Masimo tried, but failed, to stop proxy voting from happening. Masimo countered by revealing the suit forced Koffey and Politan to resubmit documents to the SEC. The documents included withdrawing claims that Kiani rejected offers to sell Masimo and that the Board allowed Kiani to sell Masimo without oversight.
It turned out there hadn’t been any offers for the company.
On September 12, Politan announced that U.S. District Court Judge James V. Selna had denied Masimo’s request for a preliminary injunction to block Politan’s nominees for the Masimo Board of Directors.
The next morning, Judge Selna found Politian in contempt of court for distributing a news release discussing the disposition of the sealed ruling from the court, giving themselves a critical “first mover advantage.”
Politan lawyers claimed they didn’t know the disposition was sealed.
Masimo released a statement about the current state of the fight.
“Politan and Quentin Koffey have relied on misleading and false statements to distract both stockholders and proxy advisory firms from their lack of a plan or strategy for Masimo. In stark contrast, Masimo has made concrete commitments to usher in changes that stockholders have said they want, including separating our consumer business and expanding the Board with more independent directors.
“Our recent earnings clearly show that our strategy is working.”
What has some financial analysts troubled is the veil of secrecy over Politan’s finances. It’s not known who put up the money for Koffey to insert itself into Masimo’s board and direction. A bid by Masimo to discover Politan’s financial backers was rejected by a Delaware judge in 2022.
Politan thought it scored a major victory when proxy firms Institutional Shareholder Services (ISS) and Glass Lewis (GL) recommended shareholders vote for their board nominees. But this month Egan-Jones Rating Company suggested shareholders vote for Kiani’s reelection to the board.
ISS and GL’s endorsement of Politan bothered national business leader Steve Forbes. He wrote last month that the two firms wanted shareholders to trust “a three-year-old hedge fund with no industry experience” over Masimo’s founding leadership. Forbes’s main concern was whether ISS and GL put third-party activist goals ahead of issuing impartial advice in leadership fights.
Ikenson agreed. He said companies like ISS and GL will financially benefit when more proxy battles occur. If there was more accountability and transparency, Ikenson argued, then investors would know why proxy firms make certain recommendations.
In the Kiani-Koffey war, the answer may be more simple: money.
“Sometimes the point of a proxy fight ends up having less to do with improving a company’s performance and more about precisely how the company achieves it,” said Brannon.
