Masimo’s billionaire CEO put shares on margin to get cash while keeping ownership ahead of proxy fight

Billionaire Masimo founder Joe Kiani, best known for his successful legal fight against Apple and his friendship with President Joe Biden, has borrowed against half of his $660 million stake in the health-technology company rather than sell his stock, according to corporate filings from earlier this week.

Borrowing against that much of a stake is unusual for executives, but may be helpful as the company prepares for a fight with an activist aiming to take control of the board. The move allows Kiani, the company’s CEO and chairman, to maintain his stake and voting power while also getting money he says he needs for family reasons.

Many medical-tech peers bar such moves, and it could leave Kiani susceptible to margin calls if Masimo’s stock falls below a certain threshold. Kiani has just under 4 million Masimo shares, or around 7.5% of the company, according to FactSet data.

Masimo, which makes wearables and health-monitoring products, is preparing to fend off a second proxy fight waged by Quentin Koffey’s Politan Capital Management. Kiani described Koffey as “destructive” in a March CNBC interview.

Masimo shares are up 15% year to date, lifting the company’s market cap past $7 billion. The stock had a volatile run in the back half of 2023, falling 47% in the third quarter before gaining 34% in the fourth.

Politan controls 8.9% of Masimo shares. While that’s bigger than Kiani’s stake, even before pledged shares are weighed, regulatory filings show that the CEO has options that could boost his holdings to 9.2% if exercised.

Politan already won two seats on Masimo’s six-person board in a contentious 2023 proxy fight, and announced last month that it would seek two more seats, including Kiani’s, to cement control.

Kiani, 59, pledged 2.97 million Masimo shares as of April, valued at $397 million, as collateral against “personal loans.” The company said in its annual filing that Kiani had family “financial planning objectives” that would require him to sell his stock, but that he “did not want to diminish his shareholdings.” His objectives weren’t spelled out in the filings.

“The pledge of shares was pre-approved by the Board and reflects Mr. Kiani’s conviction in the value of Masimo stock despite the short-term decline in the stock price during the second half of 2023,” a Masimo spokesman said in an emailed statement. “Rather than sell his pledged shares, Mr. Kiani increased his pledge to maintain his stock ownership.”

The spokesperson added that Kiani purchased about $7 million worth of Masimo stock in the second half of 2022 and the first half of 2023.

Kiani is a major Democratic Party donor who is reportedly close with the president. He also has an 8,000-acre winery in Santa Ynez, California, near Santa Barbara.  The lending is an increase from the year before, when Kiani only pledged 400,000 shares as collateral.

Masimo’s board also includes Bob Chapek, who joined in January, almost exactly a year after was he ousted as Disney’s CEO.

Several of Masimo’s peers, such as Agilent, Stryker and Medtronic, don’t allow executives to pledge their shares. Companies generally frown upon stock pledging, though some, including Masimo, permit it with board approval. Stock-backed lending, or “Lombard loans,” generally requires a borrower to sell their shares if they fall below a certain value, which in the case of large shareholders can drive a stock price down even further.

Masimo’s earlier proxy fight was marked by litigation between the two sides that led to Politan winning $18 million in legal fees after forcing the company to abandon an effort to thwart the investment firm. There were also personal attacks. In regulatory filings, the company described Koffey as someone with “hubris” that was “no different than his more prominent peer Bill Ackman.”

Major shareholders, including Vanguard, sided with the activist investor, which said that Masimo had been marred by poor governance practices and the acquisition of Sound United, a consumer audio company. Masimo shares plummeted 37% the day the deal was announced in February 2022.

Last month, Masimo said it would spin off its consumer business, an announcement that boosted the stock. When Politan announced its second campaign days later, shares rose even higher. Politan has said news of the spinoff, made after the bell on a Friday and shortly before the activist announced its second campaign, was “rushed” when the company learned of those plans.

Masimo has denied that claim. The company has yet to file a proxy statement or schedule an annual meeting.

Masimo has had some success in recent months. The company pursued high-profile patent litigation against Apple, alleging that the company infringed on its pulse oximeter technology for the Apple Watch. After some initial setbacks, Masimo won a ruling that restricted the sale of some watches. The two companies remain in negotiations on the matter.