On September 19, a vote amid the Masimo investors board saw investment firm Politan Capital finally succeeding in a year-long bid to oust company founder and CEO Joe Kiani from the board, in a heated corporate battle that has seen contempt of court rulings and accusations of deception.
The battle between the pair began after New York based investment firm Politan Capital, led by its owner Quintin Koffey, was able to secure a 9% stake in the medical device giant and add two of its own appointees to the company’s board of directors in 2022.
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The move by Politan came in response to Masimo’s previously controversial decision to acquire consumer grade audio company Sound United for $1bn – a decision which saw Masimo’s stock price tumble more than 35%, leaving an opening for Politan to announce that it had acquired a 9% stake in the company.
From this point, the conflict between Masimo’s original founder and CEO Joe Kiani and Politan founder Quentin Koffey would see the reigns of the company handed over to an industry newcomer.
Stryker CFO Bill Jellison and former Agilent Technologies chief technology officer Darlene Solomon will join Koffey alongside former Johnson & Johnson executive Michelle Brennan on the company’s six-person board.
Now, Medical Device Network is looking at how one of California’s biggest medical device firms could find its leadership under such a direct challenge from its own investors, in a series of legal events that could leave an imprint on the business of medical devices to come.
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By GlobalDataStarting missteps
When Masimo made the decision to buy Sound United in 2022 it sent shockwaves across the company’s shareholders due to concern over the acquisition of a non-medical consumer audio company responsible for headphone brand Bowers & Wilkins. It makes sense that Masimo would seek to stake a claim in the quickly burgeoning hearables market, especially given its current dominance across other wearable spaces, such as its flagship medical watch.
When Masimo did commit to buying the company, investors responded, with Masimo experiencing a sudden drop in market value which is estimated to have wiped at least $5bn in value from the company.
Later in March 2024 amid its battle with Politan, Masimo would announce that it intended to spin-out the company it had acquired only two years earlier.
According to GlobalData forecasts, the wearable tech industry was worth $99.5bn in 2022 and will reach $290.6bn by 2030, expanding at a compound annual growth rate (CAGR) of 14.3% between 2022 and 2030, with hearable devices set to drive a significant part of that growth.
The move was also taken poorly amid Masimo’s then ongoing patent battle with US tech-giant Apple over the pulse oximeter function attached to older models of the Apple iWatch. The ensuing court battle across the California-courts would end when the US International Trade Commission (USITC) ordered a halt to the import of the offending iWatches and Apple was eventually forced to redesign its device minus a pulse oximeter, giving Masimo a greater hold over the market.
Entering the audio device market, one where Apple maintains significant dominance amid ongoing litigation, was not taken with the greatest of confidence. Despite its complete success against Apple, this would not be Masimo’s last time before the California court system under Joe Kiani.
Politan argues that throughout this period, Kiani and others close to him within the management of the company ignored the concerns of investors, prompting the self-described ‘activist investor’ Quentin Koffey and Politan Capital to step in to stabilise the company. Whilst under Joe Kiani, Masimo described it more as an investment firm seeking to take advantage of a major company in a moment of weakness.
So, a proxy contest was set to begin. Politan Capital moved first making claims to investors that Kiani’s leadership had been directly responsible for several company failures in several letters to investors and even as part of a presentation dubbed “Correcting the Record.” Everything was set to come to a head at a 19 September investor vote that would decide if Masimo’s original board members would retain control.
In its opening salvo to investors, Quentin Koffey on behalf of Politan, said: “When shareholders overwhelmingly elected Ms. Brennan and me to the Masimo Board last year, I was optimistic we could work productively with the rest of the Board to drive positive change.
“Unfortunately, our efforts were continually rebuffed, as the Board 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. Mr. Kiani and his selected directors have been adamant that no governance changes are necessary. As a result, governance remains broken at the Company.”
Getting aggressive
From here things started to get particularly aggressive. In a 3 June statement, Masimo would accuse Politan and Koffrey of “misleading investors” arguing that Politan’s board members showed no independence away from the investors influence.
In a statement responding to Politan, Masimo wrote: “Masimo strongly rejects what it believes are false and misleading claims by Politan’s Quentin Koffey, a member of Masimo’s Board of Directors, and believes Politan should not be rewarded with votes for its candidates when it is providing stockholders with inaccurate, incomplete and misleading information in an effort to gain control of Masimo.”
In its Correcting the Record presentation to investors, Politan firmly laid several failures, indirectly and directly, squarely at the feel of Kiani and his brand of management, linking a number of incidents and missteps across the 2020’s, with statements made by Kiani to investors.
In that presentation, Politan, in a slide entitled “Mr. Kiani has a track record of denying problems and blaming others” citing Kiani’s assertion that the Sound United purchase had “gone very well” whilst it lost nearly half of its value near immediately.
The presentation also accuses Kiani of stating that “no patient was harmed” in a May 2024 investor meeting in relation to a Class I recall of the company’s Rad-G pulse oximeters which was prompted following two patient deaths.
Subsequently, Masimo immediately moved to sue Quentin Koffey and Politan capital for defamation. It also alleged before the US Court for the Central District of California that the company sought to mislead investors by discrediting Kiani. Politan was later forced to retract these claims.
Whilst this was all unfolding both sides moved to establish very public publicity campaigns with competing websites issuing competing press releases representing either side of the ongoing battle for the company’s board room.
Masimo launched a website named protectmasimosfuture.com, whilst Politan went with advancemasimo.com, both sites have now been quietly taken down. In one statement Masimo warned that should Kiani be removed from his post more than 300 members of Masimo’s staff, some named others unnamed, would likely resign.
Everything was set to come to a head before the company’s annual general meeting where the proxy battle for power over the company would be decided by stockholder vote.
In its final plea to investors prior to the pivotal vote, the Kiani-led Masimo warned that a vote for Politan meant: “Losing Joe Kiani, along with Masimo’s COO, Bilal Muhsin (Joe Kiani’s planned successor), and up to three hundred other key employees, including senior executives, who have expressed that they may leave Masimo if Quentin Koffey takes control.
“Even now, Quentin Koffey continues to attempt to focus stockholders on red herrings and manufactured allegations. Why? To hide that he has no plan for Masimo beyond gaining control, which will drive out the core team of innovators. As a result, Masimo’s innovation engine, credibility, growth trajectory and stock price are at risk of being destroyed.”
At the September 19 annual stockholder meeting, Politan was victorious and Kiani, alongside Chrisopher Chavez were removed from the company’s board. As a result, Joe Kiani resigned.
Aftermath
Masimo has not yet released official voting statistics from the meeting. Politan was successful, so Darlene Solomon and William Jellison were immediately appointed to the board with Michelle Brennan taking on the role of interim CEO whilst the company seeks a replacement. To date there have been no reports of mass-resignations following Kiani’s departure.
In a statement celebrating Kiani’s “decision to resign” following the pivotal vote, the company’s new interim CEO said: “I am grateful for the trust of the Board and excited by the opportunity to help Masimo continue to grow and lead as an innovation-focused company. As we go through this transition, the Board and management team are excited to learn from and work with our employees, while focusing on ensuring seamless service and support for our customers.”
In the California Courts, whilst defamation claims against Politan were settled, Koffey and Politan drew a charge of contempt of court after they published a September 12 press release announcing that they had been sued for defamation, something disallowed by a seal order granted by the California courts. Despite this, it was not enough to keep Politan from taking control of the board.
Predictably, the move has caused concern amid the medical device industry, with some feeling a sense of paranoia that one activist venture capital firm was able to oust a company’s founder and 20-year CEO from a company within just two years and a series of aggressive PR campaigns.
It remains to be seen how the dust will settle as Masimo’s new leadership settles into position with a majority leadership with only two years at the company, however none of this was able to occur without the direct backing of Masimo stockholders in the first place indicating that in the end, Masimo and Kiani’s fate may have been settled some time ago.
