Proxy fights, when shareholders join forces for corporate takeover, are de rigeur in large cap publicly traded markets. The shareholder battles over ESG practices, the CEO’s salary, or company strategy punctuate the news. Recent high-profile battles at Disney, Exxon, and Tesla feature celebrity owners, superstar leaders, and hedge funds using sometime dubious proxy services to supercharge takeovers.
These tactics are making their way to the world of small and mid-cap companies with proxy advisors using their influence to elevate activist investors. This can have the unintended consequences of upsetting investments designed for stability, like closed-ended funds preferred by retirees. Similarly, proxy wars can wreak havoc on innovative startups working in biotechnology and other emerging fields.
Consider how leading proxy advisors ISS and Glass Lewis joined forces with Quinten Koffey’s Politan Capital to oust the founder/CEO of medical device company Masimo, despite Masimo’s record of success in developing life-changing healthcare innovations. Masimo, which makes wearables, “hearables”, opioid addition prevention and recovery devices. It successfully challenged Apple for patent infringement of its blood oxygen measurement technology. CEO inventor Joe Kiani, who immigrated from Iran to the US at age nine, serves on the President's Council of Advisors on Science and Technology and has earned 500 patents on advanced signal processing, optical sensors, and wearable technologies that use light to measure blood oxygen.
Under Kiani’s leadership, Masimo earned a track record of market innovations which have improved health outcomes and delivered financial success. However, Politan is not satisfied with Kiani’s performance and wants him out. Kiani’s top deputies and engineers have threatened to leave as a result of Politan’s bid. Last week Bloomberg Law reported that a California judge found Politan in contempt of court for distributing a news release of a sealed ruling in its proxy fight with Masimo. The release was timed to influence the Sept. 19 vote in which Politan attempts take board seats and shift control to its hedge fund.
Masimo’s impressive year over year growth is detailed in recent financial statements. Under Kiani’s leadership, Masimo has delivered positive health outcomes and financial returns. It’s hard to see how this proxy war can make Masimo a better performing, stronger company. Sadly, proxy services which were intended to streamline shareholder decisions can be weaponized for hostile takeover. It’s a lot for the ordinary investor to follow, and Masimo issued a summary of the stakes ahead of Thursday’s vote.
