US medical Company Masimo should not have acquired Sound United” claims a major shareholder who has started a pitched battle against the medical Company in an effort to get two new seats on the board, a move which if successful could see the business sold.

The value of Masimo dropped over A$7 Billion when Masimo acquired the audio Company and that upset activist investment group Politan Capital Management, who are now in a head-to-head fight with the current board and if they are succesful could force the sale of Sound United.

The CEO and Chairman of Masimo Joe Kiani who is also in a bitter patent fight with Apple, believes that the acquisition of Sound United would allow the traditional medical Company to expand into the consumer health market, and that the Heos operating system, developed by Sound United could be used to develop a global home network platform that could deliver “more than home automation “for consumers.

An Annual Meeting of Stockholders on June 26, 2023. could see fireworks between the two warring groups.

Masimo has told investors, who stayed with the Company that it intends to bolster its efforts to enter the consumer health market via Sound United’s connections with retailers.

Speculation is that the business could enter the consumer health market in Australia with a range of products next year. The business already has a health watch which ChannelNews understands is going to be launched in Australia and is currently awaiting approval.

Also, Sound United’s HEOS brand offers a home networking solution that Masimo believes it can leverage to facilitate consumer medical device monitoring in the home with carriers in Australia already researching how to enter this market. Telstra has already had one crack and trying to create a business around consumer health over an IP network.

But Masimo has never been in the consumer market at all. And Sound United has never been in the medical products business either. It seemed a tenuous connection at best.

Insiders claim that Masimo is working on a new long-term strategy called hospital-to-home, in which patients can be released from a hospital procedure at an earlier stage than currently in order to further recuperate in their homes, while hospital medical professionals can continue to monitor their various vital signs via telemetry at the hospital.

Both Federal and the NSW State Governments that ChannelNews has spoken to claim that they would be Extremely Interested” in this model of health care as it frees up beds, while giving health authorities the capacity to monitor patents 24/7.

Currently the Masimo stock price is still below the value when Sound United was acquired.

Masimo blames poor performance on the fact that an activist investor is making a play for the company – a characterization that Politan denies.

Politan Capital Management now own 9% of Masimo stock as a “beneficial owner.” Quentin Koffey

They recently filed a “Verified Complaint” in the USA against Masimo, CEO Kiani, and its Board of Directors.

Masimo and Kiani responded by implementing several new Bylaws, some of which Koffey says are illegal, and certain “poison pill” provisions seeking to stop Politan, or any other shareholder, from attempting to wrest control away from Kiani and the board.

The most dramatic poison pill is a new clause written into the employment contract of CEO and founder Joe Kiani that relates to a “change of control” provision, that would trigger an immediate payment to him of $600 million.

This action is designed to make the company unattractive as an investment to corporate raiders.

Recently the second largest pension fund in the U.S., the $311 billion California State Teachers Retirement System (CalSTRS) is joining with Politan to fight Masimo management on Kiani’s $600 million change of control payout.

Both Politan and CalSTRS have gone to Delaware’s Chancery Court to challenge the CEO’s pay package with the unusual provision.

CalSTRS has owned Masimo stock for more than a decade but felt the need to take a stand. Kiani’s contract is not in the best interest of investors and “sets a dangerous precedent,” said Aeisha Mastagni, CalSTRS Portfolio Manager of Sustainable Investment and Stewardship Strategies.

PCM executive Koffey is challenging these Bylaws and other various provisions in the US court system with some level of success as the court has forced Masimo to undo some of these provisions, temporarily.

With $800 million invested in MASI stock, Politan is seeking two seats on the Masimo five-man Board of Directors.

Masimo is seeking the re-election of two current Board members – H. Michael Cohen and Julie Shimer Ph.D. Cohen is currently the “lead independent director” a recently added moniker, possibly in response to Politan’s lawsuit which claims that the board is not independent enough.

Cohen is also a former investment banker with Deutsche Bank covering healthcare investments.

He also is an advisory board member of Paragon Biosciences. Shimer was formerly President and CEO of Welch Allyn and Vocera Communications. She is also a current Board member of Avanos Medical.

If Koffey is successful and takes both seats on the Masimo Board of Directors, he won’t have a majority of the Board, but he will be in a serious position of influence within the company claim observers.

Recently, Masimo added a new proposal which calls for a vote on adding an additional two more directors to the board, this will be voted on at the AGM.

This would dilute Koffey’s influence, should he succeed in getting Brennan and himself on the Board.

Koffey believes that there are several things that need to be fixed at Masimo, but it all starts with the issue of what he describes as The value-destroying investment in Sound United”.

In a letter to Masimo shareholders, under the heading “An unprecedented collapse in value reveals a crisis of confidence,” Koffey said: “The decline in Masimo’s valuation following its acquisition of Sound United last year demonstrates just how concerned Masimo’s shareholders are. Upon announcing the $1 billion cash acquisition, Masimo’s market valuation fell by over $5 billion. At five times the purchase price, such a loss of value is unprecedented. It is 19x the standard deviation seen in US public markets following a deal, and three times worse than the second largest decline in the past decade”.

This violent market reaction revealed a long-simmering crisis of investor confidence. In fact, seven of the Company’s 20 largest shareholders exited their investments, despite on average having owned Masimo for six years. If Masimo had dropped by $1 billion (the purchase price), perhaps that could be seen simply as shareholders not supporting the Board’s specific decision to acquire Sound United. But declining by $4 billion more than the acquisition price reveals something much more fundamentally damaging: a concern there is no Board oversight in place to stop future value destruction.

Koffey believes that acquiring Sound United was a bad strategic initiative that takes the company’s attention away from its core medical business in general, and pulse oximetry business specifically – accounting for 90% of the company’s EBITDA.

If Koffey win the two board seats, he will immediately begin to advocate for the jettisoning of Sound United and a refocused commitment to Masimo’s core business.