Good morning.
Disney CEO Bob Iger’s victory over Trian Partners CEO Nelson Peltz last week has put fresh scrutiny on the role of activist investors. (Trian prefers to characterize itself as a “highly engaged shareowner.”) Some leaders say they welcome activist investors. ServiceNow CEO Bill McDermott told me last year that he enjoyed working with Paul Singer’s Elliott Management while running SAP because the two sides were “perfectly consistent” on where the company needed to go and how.
But acrimony is a more common response to investors who’ve built up a stake because they believe their plan for the company is superior to the one in place. Take, for example, the current battle that’s playing out at medical technology company Masimo Corp., where CEO Joe Kiani is publicly opposed to activist Quentin Koffey, whose Politan Capital Management has built up a 9% stake in the company and intends to nominate two more directors in addition to the two directors elected to the board last year.
It’s a bitter fight and neither side is eager to talk on the record, so I’ll sum up some issues raised in my conversations rather than get into dueling press statements.
Kiani is not just CEO but also the founder who built Masimo into a $2 billion-a-year leader in pulse oximetry and other patient-monitoring technology that annually serves more than 200 million people. The current challenge began when the board approved the acquisition of Sound United, a consumer audio company, in part to integrate audio technology into Masimo’s product line. But the $1 billion price tag was a shock to shareholders, who sent Masimo’s share price down 37% the day after the deal was announced in 2022.
The stock’s drop created an opening for Politan, which accrued a 9% stake and lobbied shareholders to elect Koffey and health care veteran Michelle Brennan as independent directors at the 2023 annual general meeting. Both got on, with support from advisory firm Institutional Shareholder Services, which praised Kiani as an innovator but accused him of running “a public company like a private business.”
There has been much back and forth since then, with Masimo unsuccessfully trying to force Politan to disclose who’s investing in its fund. Last month, Politan launched a second proxy fight to get two more of its candidates on the board—with Masimo and Politan both accusing the other of misleading investors.
This is the kind of battle where it can be hard to pick a winner. It’s unclear how Koffey intends to build long-term value at Masimo—especially as the company now plans to spin off its consumer businesses to focus on health care. CEO Kiani needs to answer to—and work with—company shareholders.
Boosting a stock price and building a company are two very different things, as Yale’s Jeffrey Sonnenfeld and Steven Tian argued when looking at Peltz’s record. But this is the way the game is usually played, for good and for ill. When neither side cooperates with the other, the battle becomes public. And investors should take heed from my colleague Geoff Colvin, who notes that following an activist investor into a stock is a tricky strategy. While you might make modest gains by investing immediately after an activist hedge fund discloses its position, he writes, that strategy is “not, alas, a guaranteed route to riches.”
More news below
Diane Brady
@dianebrady
diane.brady@fortune.com
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