The spin off of the former Sound United business from Masimo’s mainstream health business, has taken another turn, with a new drama’s unfolding for Masimo CEO and audiophile Joe Kiani who is being accused of running the business in his best interests with key information not shared with other directors.
The whole notion of acquiring Sound United was premeditated on the notion that Masimo wanted to move into the consumer market with premium health watches, and that Sound United who owned eight legendary audio brands including, Bowers & Wilkins, Denon, Marantz, Polk Audio, Definitive Technology, Classé, HEOS, and Boston Acoustics could deliver them the retailers and the distribution network to meet their launch objectives in the consumer market.
On the day that Masimo announced the deal in 2022, their shares tanked and have failed to fully recover, that was until this week when CEO Joe Kiani (seen below) was forced into a no win situation that led to his board faction spinning out of the business into a new entity which ChannelNews understands Kiani will have a major shareholding in.
When the Sound United acquisition went down, Investors demonstrated their dissatisfaction by initially selling off the stock and recently voting to support new independent Directors onto the Masimo Board.
Since the announcement of the spin out of the Masimo Consumer division the stock has risen over 4.5%.
Kiani’s problems kicked off shortly after he acquired Sound United when activist investor Politan Capital Management and its CIO Quentin Koffey – a current Masimo Director decided to push for a restructure of the Masimo board with some claiming that the Sound United acquisition was “A very poor investment”.
When the board announced the nomination of two independent director candidates the the board of directors which in the past Kiani was able to control, Koffey went on the record to describe the board under Kiani, who is currently in a major fight with Apple over their Oxygen management software, that was being used in the Apple watch, as being dysfunctional and uncooperative claiming that Kiani’s desire for control “is troubling.”
This week a global hook up of consumer division management is set to happen with insiders tipping that the business could “Be sold or a VC fund takes a major shareholding” in the future.
Politan Capital Management is a major investor in Masimo and one of the new Masimo Directors is Politan Founder and Chief Investment Officer Quentin Koffey, who along with Michelle Brennan – another Politan executive.
The appointments give Politan a majority – and control – of the Masimo Board of Directors.
They now appear to be keen to totally offload the former Sound United assets with Masimo focusing totally on professional health care.
On Monday, one business day after the company announced the spin-off, share value of Masimo stock rose $4.50/share to close at $139.43, more than 3.3% higher than the close on Friday (before the announcement) of $134.93.
Politan still holds 8.9% of all of Masimo’s shares and they have sought to let investors know that since its candidates joined the Board, serious governance problems have persisted due to the way that Kiani runs the business.
They admit that they have been working on offloading Masimo’s Consumer business ever since the acquisition.
Koffey claims that “When shareholders overwhelmingly elected Michelle Brennan and me to the Masimo Board last year, we were optimistic we could work productively with the rest of the Board to drive positive change. Unfortunately, our efforts were continually rebuffed, as Chairman & CEO Joe 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”.
Koffey went on to tell investors that the Politan’s Directors have been working for eighteen months to get management to seriously address the spinning-off the consumer division.
They claim that information is controlled tightly by Kiani who is believed to have a major stake in the new consumer business.
He now stands accused of not sharing information with other directors “even basic facts such as what COGS, SG&A or R&D dollars are actually spent on”.
The independents claim that there is no budget approval process by the Board, thereby allowing the Chairman & CEO to spend however much he wants on whatever he wants without Board review, authorization or even knowledge and that included the acquisition for $1.4 billion of the Sound United business.
According to Koffey, how the spin-off is managed going forward is critical.
He claims that “there would be vital considerations around the allocation of Masimo’s intellectual property and the control of a potential SpinCo. We have serious concerns that Mr. Kiani, without proper oversight, will seek to push through a spin-off with poor corporate governance and IP arrangements where assets are allocated in such a manner designed to maintain his control and influence of both separated companies.”
The Politan CIO added that Kiani knew Koffey would be nominating more directors in an effort to take control of the Board and that the other directors were not aware of the details around the spin off Company until late last week.
