Masimo's stock gains on report of activist campaign, disclosure of spinoff plan

By Steve Gelsi

Politan Capital plans to nominate two more people to Masimo's board

Masimo Corp.'s stock was up by nearly 4% on Monday after Politan Capital Management said it plans to nominate two more members to the patient-monitoring-technology company's board.

Separately, Masimo said it plans to spin off its consumer unit, which includes its Stork baby monitor and Freedom smartwatch and band.

Politan, which was launched by Quentin Koffey, already has two seats on Masimo's board. Koffey said that Masimo Chief Executive Joe Kiani has declined to provide the board members with information they've requested in the past.

"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," Koffey said in a prepared statement. "Unfortunately, our efforts were continually rebuffed."

While Politan said it supports Masimo's strategic review of its consumer business, including a potential spinoff, the board has received "zero details, and Politan has serious concerns given the lack of basic governance and oversight we have observed," the activist fund said.

Masimo's stock (MASI) rose by $4.81 to $139.74 on Monday afternoon.

A spokesperson for Masimo said the two current Politan board members have never been excluded from a board meeting and "have been provided an enormous amount of information and data," including in discussions with Masimo executives.

Founded by current CEO Kiani in 1989, the Irvine, Calif.-based Masimo makes and sells remote patient monitoring, connectivity and hospital automation products including Masimo Patient SafetyNet.

Late Friday, Masimo said it plans to spin off its consumer unit. Masimo said Kiani is expected to remain as chair and chief executive the company, and is also expected to be named chair of the spinoff company.

"Masimo will seek to complete the separation as soon as feasible," the company said.

The move by Politan to nominate two more board members was initially reported by the Wall Street Journal, which cited people familiar with the matter.

Masimo also said the company remains committed to conducting a review of the proposed separation of its consumer business.

"Members of the board, including Quentin Koffey, have been a key part of the discussions concerning the separation dating back to January, when Joe Kiani first proposed the idea following a listening tour with shareholders," the statement said.

Politan is nominating to the Masimo board William Jellison, the former financial chief of Stryker who retired in 2016, and Darlene Solomon, the former chief technology officer of Agilent Technologies, the activist firm said in a statement.

Meanwhile, Kiani is one of two directors up for election this year.

Politan has owned a 9% position in Masimo since 2022 and won two board seats at Masimo's annual meeting last year.

Masimo's stock fell sharply after it agreed to buy the consumer-technology business for $1 billion in 2022. Its core business remains professional healthcare and telehealth products.

Stifel analyst Rick Wise reiterated a hold rating on Masimo and boosted his price target to $148 from $125 a share.

Masimo is launching the review of its potential spinoff about a year ahead of expectations, Wise said in a research note published prior to the stock's opening trade on Monday.

"We're inclined to think [Masimo] shares will react positively to the consumer separation review development," Wise said. "The review highlights the potential to return Masimo's sole focus to the healthcare franchise ... its innovation pipeline, profitability, and competitive position."

Needham analyst Mike Matson reiterated a hold rating on Masimo and said that while the separation will improve the profitability of the company's healthcare business, "we don't interpret this to mean that the separation will necessarily be accretive to the combined companies' current earnings per share," because the move may further dilute Masimo's stock.

Prior to Friday's moves, Masimo's stock was up 15% so far in 2024, compared with a 9.75 gain by the S&P 500 SPX.

-Steve Gelsi

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03-25-24 1523ET

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