Founder and CEO of Masimo, Joe Kiani addresses a press conference in Bangalore on January 2, 2017.

Manjunath Kiran | AFP | Getty Images

Despite voting for change at last year’s annual meeting, shareholders in medical device maker Masimo have seen their governance concerns go largely unresolved, according to activist investor Politan Capital Management.

With just a month until the 2024 annual meeting, Politan, which has already won two board seats, is looking to go further. Led by Quentin Koffey, Politan has nominated two further directors to the company’s board, and says that without their election, management will continue to operate without oversight. Masimo founder and CEO Joe Kiani says if shareholders vote him out, he won’t come back.

“This is shareholders’ last chance at meaningful change,” Politan wrote in a letter to Masimo shareholders on Wednesday, laying out its case to investors ahead of the meeting. A copy of the letter and attached presentation was obtained by CNBC.

Masimo, best known for its successful patent litigation over the Apple Watch, was initially targeted by Politan last year due to what the activist viewed as bad management, a lack of independent board leadership and a flawed acquisition that took the company away from its core business.

Swayed by Politan’s arguments, investors voted last year to elect Koffey and Michelle Brennan to the board.

But governance improvements have fallen short of what shareholders deserve, Koffey wrote in the letter, noting that Masimo’s board “does not review, approve or see a budget.”

“This results in Mr. Kiani spending whatever he wants however he wants,” Koffey wrote.

For this year’s meeting, Politan has nominated Darlene Solomon, formerly chief technology officer at Agilent, and Bill Jellison, who was chief financial officer at Stryker.

Masimo’s stock has continued to slide, falling 28% since last year’s meeting, while the S&P 500 has gained 26% over that stretch. Politan says it’s been stymied from making any meaningful changes to how the company is run, and says Masimo’s board still has no oversight over CEO Kiani or the direction of the company.

The activist says that with proper governance, the company could show a $10 billion increase in shareholder value. Its current market cap is $7 billion.

“Fundamentally, what this upcoming vote is about is simple: fixing the prolonged and deliberate refusal by Masimo to permit independent oversight,” Koffey wrote in the latest letter.

Last year’s proxy fight was hotly contested and expensive. Masimo took aggressive steps to fend off Politan, introducing bylaws to force the firm to reveal its shareholder list. Many of those efforts were rejected by a Delaware judge. Kiani threatened to quit if Koffey was elected.

A representative for Masimo did not immediately return a request for comment.

‘Shareholders spoke’

Kiani remains CEO and many of the same themes persist. But in this year’s proxy fight, Kiani sits in one of the director seats that Politan is targeting.

“Shareholders spoke,” Politan said in its presentation. “But nothing changed.”

A key part of Politan’s pitch to shareholders last year revolved around Masimo’s $1 billion acquisition of Sound United, the owner of high-end audio brands like Bowers & Wilkins and Denon. Politan highlighted the 2022 deal as an example of what happens under a poor governance structure. Masimo’s stock plunged 37% after the purchase was announced.

While Kiani has continued to claim that the tie-up would help Masimo bring its medical tech into homes, the company said in March that it would heed investor concerns and spin off the consumer brands.

But the matter is hardly resolved. Politan said in its Wednesday letter that Kiani dissolved the spinoff’s special committee, helmed by Koffey, after it “rejected or modified many” of the CEO’s demands. For the new company, Kiani had been seeking Masimo’s name, its corporate headquarters and jet as well as a $150 million cash infusion, according to filings from both the activist and the company.

Politan also highlighted what it called “egregious compensation” and “lavish” spending by Mr. Kiani, pointing to Caribbean and European vacations on Masimo’s corporate jet and hundreds of millions of dollars worth of stock pledging.

The Masimo logo is displayed at Masimo headquarters on December 27, 2023 in Irvine, California. 

Mario Tama | Getty Images

Kiani told CNBC earlier this year that a third party was interested in a joint venture, but he didn’t provide specifics. Koffey said that he and Masimo’s board were told the name of the potential partner only after a tentative deal had been signed. Shareholders still haven’t been informed.

“Politan wants a separation done right,” Koffey wrote in Wednesday’s letter. “We have been asking for a strategic review of the Sound United business and consumer healthcare spending for over 18 months.”

Politan also noted in the letter that investors have opposed the company’s pay practices and director choices for more than a decade.

Masimo has ranked at the bottom 0.1% of say-on-pay votes among companies in the Russell 3000 for as long as that metric has existed, Politan noted. Kiani would be entitled to a change-in-control payout of more than $400 million should he lose his board seat or if the company completes the spinoff in his preferred fashion, according to regulatory filings.

Politan says its campaign needs to succeed because management’s intractability will make it hard for another shareholder to mount a similar push in the future.

“For more than two years, Politan has navigated unprecedented impediments thrown up by Masimo’s board,” the activist said. “We doubt any shareholder will ever try to do so again.”

WATCH: Masimo CEO Kiani says healthcare investors don’t get consumer side of business

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