Sends Letter to Shareholders Reiterating Why Voting for Both Politan’s “Highly Credible and Capable” Nominees Is Essential in Order to Safeguard Shareholder Value and Realize Masimo’s Potential
Highlights Key Facts Brought to Light During Discovery Process and Remains Confident That Masimo’s Frivolous Legal Claims and Efforts to Reject Politan’s Nomination Notice Will Be Defeated
Dear Fellow Masimo Shareholders,
Politan owns 9% of Masimo – an approximately $600 million investment that makes us one of the Company’s largest shareholders. For more than two years, we have been working to bring genuine independence and oversight to Masimo’s boardroom so the Company can realize its vast potential for shareholders, employees and patients.
We previously laid out the detailed case in our June 26 letter and investor presentation for why a majority of independent directors are urgently needed at Masimo in order to halt the pattern of broken governance, underperformance and entrenchment that has been allowed to continually recur over the past decade. The developments that have transpired since then have reinforced beyond any doubt that this change at Masimo is needed now. This can only be achieved by electing both of our unquestionably independent and ideally qualified nominees – Darlene Solomon, former Chief Technology Officer of Agilent, and Bill Jellison, former Chief Financial Officer of Stryker – to Masimo’s Board of Directors.
In July, only nine days before shareholders were scheduled to vote at Masimo’s Annual Meeting, Joe Kiani and the Board delayed the AGM by two months – resulting in a meeting date inconsistent with Delaware law and in violation of the Company’s own bylaws. This maneuver to deny shareholders a timely election came immediately after both proxy advisory firms strongly supported Politan and our nominees.
In its “lopsided” report in support of Politan’s nominees, Institutional Shareholder Services, Inc. (ISS) stated:i
·“Moreover, like last year, Kiani and his cohort have adopted defensive rhetoric that reflects disregard for shareholders. In summary, they have continued their established pattern of presenting arguments that they apparently think will resonate with the investor base, but that crumble under basic scrutiny.”
·“…[S]hareholders have no reason to believe that management can be trusted to structure a pivotal transaction (to separate Masimo’s consumer business) on their behalf without the safeguard of further board independence. Thus, change is not only warranted on the basis of fundamental corporate governance failings, but is absolutely necessary to ensure that the separation does not compromise shareholder value.”
·“[Masimo] has a corporate governance track record that is firmly among the most troubling of any modern public company.”
·“…Kiani has demonstrated that he has no regard for public shareholders. He has been at the center of so many corporate governance scandals and abuses that no credible argument exists to the contrary.”
Similarly, in an analysis described as “scathing” in its criticism of Masimo and which offered full support for Politan’s nominees, Glass, Lewis & Co. wrote:ii
·“…[T]here remains a wealth of evidence to suggest operational and strategic execution, shareholder value and fundamentally sound corporate governance continue to take a back seat to the espoused preferences of Mr. Kiani, who continues to run roughshod over a largely self-selected board seemingly disinterested in basic accountability and effective oversight.”
·“…[W]e ultimately find both Mr. Jellison and Dr. Solomon to be highly credible and capable candidates bringing appropriate industry expertise, potentially critical M&A/IP knowledge and reasonable public board experience (including relevant committee service). We believe there is suitable cause to conclude these nominees will act independently and that neither candidate is beholden to the interests of Politan or Quentin Koffey.”
Concurrent with delaying the Annual Meeting, Masimo filed a meritless lawsuit against Politan in California federal court seeking to block our nominations. Over the past month, we have been working to clear this final obstacle and demonstrate that the suit is frivolous. Notably, information that has come to light during the discovery process has served to both confirm and heighten many of the concerns we have previously raised, as well as reveal the extent to which Masimo and Mr. Kiani consistently have made serious claims for which there is no factual support. Key examples include:
Discovery has shown Masimo’s central accusation is false, based on “quadruple hearsay,”iii and their “witnesses” do not even exist: The Company initially alleged – including in press releases and communication with the media – that Mr. Koffey was conspiring with the Wolf Haldenstein law firm to assist in litigation against Masimo. During the course of discovery, it has been revealed that there was no credible evidence to support this charge. In fact, Masimo and its affiliates made this defamatory claim even though the Company, its lawyers, the opposition research/PR firm they retained and the private investigator they hired, did not know the identity of the confidential witnesses who were the basis for the accusation. That is because these witnesses do not exist. The Company is now seeking to paint Politan’s use of standard “expert network” firms, like AlphaSights, for investment due diligence as a nefarious act – an equally desperate claim that once again lacks any factual basis.
Definitive evidence exists regarding Mr. Kiani’s role in RTW’s empty voting scheme: Masimo has denied any knowledge of the plan carried out by Mr. Kiani’s friends at RTW to manipulate the outcome of the election by voting shares in which RTW had no economic interest. Notably, Glass Lewis wrote in its report that if additional evidence emerged demonstrating Masimo was aware, it would be a “highly inappropriate manipulation of the shareholder franchise and a severe indictment of Masimo's credibility and corporate governance.”
The discovery process revealed multiple texts and calls, as well as communications on encrypted applications like WhatsApp, between Mr. Kiani and the executives at RTW in charge of voting the firm’s Masimo position. The communications show Mr. Kiani and his advisors not only knew about RTW artificially inflating its vote totals to ~10% through empty voting, but also knew how much this would lower the corresponding level of votable shares for the investor RTW borrowed stock from – who would not have been aware of RTW’s intentions. Most concerningly, it appears based on recent vote reports that RTW and Masimo are pursuing this empty voting strategy again in advance of the September 19 meeting in connection with the new record date. We anticipate that Masimo will continue to mislead shareholders by denying knowledge of the empty voting scheme and misrepresenting communications by Politan’s advisors discussing how quickly we moved to alert the Board after becoming aware of the scheme. Any denial by Mr. Kiani and his advisors ignores the clear documentary evidence. Politan is taking the appropriate next steps with the Delaware Chancery Court and with regulators.
The Board’s claim that Mr. Kiani’s desired separation is good for shareholders has now been thoroughly refuted by a blue-chip, independent financial advisor: The highly respected investment bank Centerview Partners was hired to advise the Special Committee tasked with evaluating a separation of Masimo’s consumer business. In a declaration submitted in support of Politan’s brief, Centerview states that it advised the directors on the committee that the separation of IP proposed by Mr. Kiani would create a “negative valuation overhang,” and that if a separation were to proceed on such terms, it would “decrease value for Masimo shareholders.”
The Board’s threats of disruption are not credible: Last week, Masimo made its latest claim that if the Company loses the shareholder vote, Mr. Kiani would leave and the result would be significant disruption to the business – most notably in the form of departing employees. In truth, Mr. Kiani does not run the day-to-day healthcare business, was already planning to transition out of the CEO role, and Politan has laid out a detailed plan that would minimize any disruption. Further, it became evident during discovery that Masimo’s sweeping claims of employee support for Mr. Kiani are inaccurate, given that following a May Town Hall with engineering staff, the head of engineering communicated that the meeting did not “resonate well with people” and that the engineering employees “have lost trust in what [Kiani] says.”
Masimo’s shifting narratives are crumbling: This campaign is not a matter of “he said, she said.” Instead, as more information surfaces through the legal process and more third-party experts lend their voices to help assess the practices in Masimo’s boardroom, it has been made clear that the “defensive rhetoric” Mr. Kiani and his team rely on is hollow. For example, in an affidavit David Larcker, one of the foremost corporate governance experts in the country, corroborates that Mr. Koffey and Ms. Brennan were denied basic information necessary for sitting directors to perform their duties, including that Masimo never fulfilled these directors’ most basic requests to see an actual budget. Further, discovery has confirmed the lack of independent oversight on Masimo’s Board, with directors simply not informed of material risks such as SEC and DOJ investigations into the Company’s conduct.
It is unfortunate that Masimo’s shareholders have had to deal with Masimo’s delays and attempts to block a fair vote from occurring. It appears there is no limit to what Mr. Kiani will have Masimo say, do or spend to preserve his absolute control. These challenges have only further underscored the urgent need for change in Masimo’s boardroom. At the same time, it has also become clearer that the chance to fix these oversight issues is why the opportunity for value creation is so immense. With true independence and accountability in the boardroom, Masimo can be refocused as a growth business targeting 8-10% revenue growth and 35+% EBIT margins (while targeting R&D spending levels above Mr. Kiani’s own projections), and in the process unlock $10+ billion of shareholder value over time.
Currently, a hearing on the California litigation is set for September 9. While we expect to prevail there, we are sure that no matter what the judge’s ruling, you will hear Masimo spin it into some attack on Politan. We encourage you to continue to ignore these distractions and focus on the opportunity at Masimo. In the meantime, we will continue to keep you updated between now and the Annual Meeting.
Sincerely,
Quentin Koffey
Politan Capital Management
Biographies of Politan’s Nominees
Dr. Darlene Solomon is a scientist by training who recently completed a 39-year career at Agilent Technologies, Inc. At Agilent, she served in numerous leadership roles – including as Chief Technology Officer and Senior Vice President under three successive CEOs – and helped define the company’s technology strategy and R&D priorities.
As part of Agilent’s corporate transformation toward becoming a market-leading life sciences and diagnostics company, Darlene helped oversee three different separations of Agilent, Avago and Keysight. As a result, she brings critical expertise that would inform the appropriate division of Masimo’s IP in a separation of its Consumer Business, as well as the understanding of how best to lead and retain technical talent while executing forward-looking business growth.
Darlene is an independent director on the boards of Materion Corporation (NYSE: MTRN), where she is a past member of the Audit and Risk Committee and currently on the Compensation Committee and the Nominating, Governance, and Corporate Responsibility Committee, and of Novanta, Inc. (Nasdaq: NOVT), where she is a member of the Compensation Committee. Darlene is also a member of the National Academy of Engineering and serves on multiple academic and government advisory boards focused on science, technology, and innovation. Darlene holds a BS from Stanford University and a Ph.D. from MIT.
William “Bill” Jellison is a veteran medical technology executive and finance expert with decades of relevant experience, including as the former Chief Financial Officer of Stryker Corporation. Bill would bring extensive medical technology and financial oversight expertise. He would also be a natural fit to chair the Masimo Board’s Audit Committee, which has not been chaired by a director with any audit committee or even public company board experience in nearly five years. Bill presided over billions of dollars of M&A transactions during his tenure as Chief Financial Officer and would bring significant experience to the evaluation of a separation transaction at Masimo.
While at Stryker, Bill also oversaw all areas of international finance, including accounting, planning and analysis, SEC reporting, acquisition valuations, internal audit, tax and treasury activity. Prior to this, Bill spent 15 years at Dentsply International in a number of leadership positions, including Chief Financial Officer and as a Senior Vice President with full P&L responsibilities for some of Dentsply’s operating divisions in the U.S., Europe and Asia.
Bill is an independent director on the boards of Avient Corporation (NYSE: AVNT) where he is chair of the Audit Committee and a member of the Environmental, Health and Safety Committee, and of Anika Therapeutics (Nasdaq: ANIK), where he serves on the Capital Allocation Committee. He holds a BA from Hope College in Holland, Michigan.
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