A busy end to March for medical device maker Masimo Corp. (Nasdaq: MASI) could soon result in the creation of a new billion-dollar public company in Orange County, one with a focus on consumer-focused products.
Also in play: the potential removal of Joe Kiani as chairman of the company he co-founded in 1989, according to analysts that follow the Irvine-based company, which is being targeted by an activist investor well known on Wall Street.
Kiani tells the Business Journal that he isn’t fazed by the latest corporate battle.
“I’d be happy to continue doing what I’m doing,” he said. But, “if they want to vote me out, they can vote me out.”
Masimo, OC’s fifth-most valuable public company with a valuation topping $7 billion on March 22 announced plans to spin off its consumer business.
Kiani, Masimo’s chief executive and chairman, would retain his current positions at Masimo post-spinoff, and, according to the company’s current plans, would become chairman of the new stand-alone company. A new CEO would be named for that business.
The deal could be completed in as soon as one year, according to the company.
Spinoff
Kiani said he first proposed a separation of the consumer business to Masimo’s board in January.
“This approach is expected to maximize shareholder value as well as give both Masimo healthcare and the new consumer business the best path for success,” Kiani said in a statement.
Masimo expects the spinoff to include its consumer audio and consumer health products, including the Stork baby monitor, Freedom smartwatch and hearing aids the company is currently working on.
Kiani said Masimo, post-spinoff, will continue to make products for hospitals and doctor offices, long its main source of business, and a more profitable business than the consumer division of late.
“There’s a lot of things for us to do,” Kiani said.
Shares in the company, which sported a $7.8 billion market cap as of March 29, rose 4% following news of the spinoff.
Koffey’s Kick
The move to separate the consumer business comes about two years after Masimo paid $1 billion—its largest-ever acquisition—to Carlsbad’s Sound United, a consumer company best known for making audio speakers and headphones under brands like Boston Acoustics, Polk and Bowers & Wilkins.
That acquisition wasn’t well received by investors, which sent Masimo’s shares tumbling; the company’s market value fell $5.2 billion in one day.
The fallout from the stock tumble caught the attention of Quentin Koffey, founder and chief investment officer of activist investor Politan Capital Management, who quickly amassed a nearly 9% stake in Masimo, roughly the same as Kiani’s stake in the business.
Politan last year won a proxy battle that resulted in Koffey and former Johnson & Johnson exec Michelle Brennan joining Masimo’s board of directors.
Since then, “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,” Politan said in a March 25 statement.
“[Koffey] may be a great activist, but unfortunately, he doesn’t know how to run a company,” Kiani told the Business Journal.
Last week, the activist upped its pressure against Masimo, announcing that it’s seeking two more board seats, just two days after Masimo announced the separation proposal. Politan says it supports a potential sale of the consumer business.
Politan’s two candidates are former Agilent Chief Technology Officer Darlene Solomon and former Stryker and Dentsply Chief Financial Officer William Jellison.
Assuming Koffey wins the battle, the activist would gain majority control and potentially “result in the removal of CEO Kiani from the board,” according to Piper Sandler analysts Jason Bednar and Joseph Downing.
“From our perspective, the situation at MASI is playing out largely as we and many others expected, even if the sequencing of events is a bit different than we anticipated and adds a bit of drama to the story,” the analysts said in a March 25 report.
Kiani, who started the company in his garage in 1989, said he is focused on doing what’s best to help Masimo and hopes to get help from shareholders during this time.
Apple Watches
The activist proxy battle is not the only dispute Masimo is involved in.
Masimo has been locked in an ongoing legal battle with Apple Inc. (Nasdaq: APPL), the world’s second-most valuable publicly traded company with a $2.7 trillion market cap, for over three years.
Masimo in 2021 first sued Apple for infringing on its pulse oximetry technology for smartwatches, initially resulting in the U.S. International Trade Commission ruling in favor of Masimo.
In a recent update, an appeals court in January upheld a ban on the importation of Apple’s Series 9 and Ultra 2 watch models in the U.S., marking a significant victory for Masimo.
Apple, which has redesigned some watch models to adhere to the ruling, is appealing the ITC decision.
A related trade theft case retrial in federal court is also on the docket, in Santa Ana.
