Masimo activist agrees to end proxy fight if company expands board, adds both nominees

Activist Politan Capital said on Thursday it would not mount a proxy fight to oust Masimo CEO Joe Kiani if the company agreed to add the activist’s two new directors, according to a letter viewed by CNBC, responding to the company’s settlement offer with one of their own.

Earlier in the day, Masimo had offered to add one of Politan’s nominees, William Jellison, to fill an upcoming vacancy on the company’s six-person board. Politan’s Quentin Koffey responded to the offer with one of his own: Add Jellison and give another board seat to the activist’s other nominee Darlene Solomon.

“Masimo needs a majority of truly independent directors. There is a straightforward and clear solution: add Darlene Solomon and Bill Jellison to Masimo’s Board immediately,” Koffey wrote.

The expansion, Koffey noted, would “fulfill Masimo’s promise,” first made in 2015 and reiterated in 2023, to expand its board to seven people. Koffey said Politan would not oppose the election of Kiani at the yet-to-be-scheduled annual shareholder meeting. The move would still give the activist nominees control over the company’s board, but would allow Kiani to protect himself from a bruising proxy contest.

Masimo’s lead independent director Craig Reynolds said in a letter earlier Thursday that a settlement would “avoid the significant distraction and expense of a proxy contest.” The company is trying to spin off its consumer technology division in concert with an unspecified joint-venture partner, CEO Joe Kiani said earlier this year.

Koffey’s response said Politan “welcomed genuine efforts” to settle, but suggested the company was not working productively. By the activist’s reckoning, Reynolds made a verbal offer with a 24-hour deadline that Koffey initially refused.

“It is hard not to see this proposal as little more than gamesmanship, rather than a genuine effort to resolve the deep-seated and recurring governance failures at Masimo that have resulted in substantial harm to the company and its shareholders,” Koffey wrote.

Representatives for Masimo did not immediately return a request for comment.

Koffey said earlier this week that Masimo had withheld information on the joint venture from the board — requiring that directors sign a nondisclosure agreement to learn the potential partner’s name. He threatened litigation unless the company provided him with that information by Friday.

The settlement offer would not have been possible without the imminent resignation of current director Rolf Classon, whose departure was attributed to “personal health reasons.”

Koffey waged a successful proxy fight at Masimo last year earning himself and another nominee representation on Masimo’s six-person board. The activist argued Masimo’s consumer technology acquisition was enabled by poor governance, a charge that large shareholders endorsed and that Koffey said has continued unabated through his tenure as a director.

Politan launched a second proxy fight to oust Kiani earlier this year, saying that the “absence of oversight has been damaging for shareholders.” The activist also noted that outside of Kiani, no board member had access to “basic facts,” even around research and development spending or sales and goods costs.