- The election of two new directors to Masimo’s board last month could set the stage for a sale or spinoff of the medtech company’s Sound United consumer audio division, analysts at Needham said in a report on Monday.
- In June, Masimo shareholders voted to seat two board candidates put forward by activist investor Politan Capital Management, which had argued that a shift away from its focus on core patient-monitoring technology markets caused a collapse in the company’s stock price.
- Masimo, which is launching a series of consumer health products that includes three wearable devices and a baby-monitoring system, could pursue this strategy even if it parts ways with Sound United, the Needham analysts wrote.
Last year, pulse oximetry specialist Masimo took an unusual step for a medical device maker when it acquired Sound United, a consumer technology company with a portfolio of home entertainment brands such as Denon, Marantz, Polk Audio and Definitive Technology.
Masimo founder and CEO Joe Kiani said Sound Audio’s consumer product expertise would help accelerate distribution of the company’s expanding portfolio of consumer-facing healthcare products.
Politan Capital, however, contended that the $1 billion acquisition of Sound Audio, and a loss of confidence in governance triggered by the transaction, shrank Masimo’s market capitalization by $5 billion, as a number of large investors fled the stock after the deal.
After a proxy battle that ended last month, a majority of shareholders backed Politan’s nominees for Masimo’s board, electing Quentin Koffey, Politan’s chief investment officer, and Michelle Brennan, a former Johnson & Johnson executive. Koffey, in a statement, said the vote was a “clear mandate from shareholders that significant change is needed at Masimo.”
Needham’s analysts said that could mean a sale or spinoff of the Sound United business is in the company’s future.
“The activist firm targeting MASI won two board seats, and we think that this could result in MASI separating the Sound United business,” they wrote.
The analysts also said Masimo could continue to pursue its consumer healthcare strategy without Sound United. “We're not convinced that Sound United is essential to the success of the consumer health products,” they said, noting those devices are being sold under the Masimo brand rather than any of the Sound United brands.
“Since retailers such as Best Buy are expanding their health care offerings, they are likely to carry the consumer health products in their stores whether or not MASI owns Sound United,” the analysts said.
Masimo did not respond to a request for comment.
Needham’s analysts predicted Masimo would most likely channel the proceeds of a Sound United sale toward repaying the debt raised to finance the deal. Masimo had about $898 million in debt at the end of the first quarter.