Masimo CEO Joe Kiani pledged $400 million worth of Masimo stock for loans

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

Borrowing against such a large stake is unusual for executives, but can prove useful as the company prepares for a fight with an activist to take control of the board. The move allows Kiani, the company’s CEO and president, to retain his ownership stake and voting rights while getting the money he says he needs for family reasons.

Many medtech industry peers prohibit such moves, which could expose Kiani to margin calls if Masimo shares fall below a certain threshold. Kiani owns just under 4 million Masimo shares, or about 7.5% of the company, according to FactSet data.

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

Masimo shares are up 15% this year, pushing the company’s market capitalization past $7 billion. The stock experienced a volatile performance during the second half of 2023, falling 47% in the third quarter before gaining 34% in the fourth.

Politan controls 8.9% of Masimo shares. While that sum is more than Kiani’s stake, even before the promised shares are weighed, regulatory filings show the CEO has options that could increase his stake to 9.2% if exercised.

Politan already won two seats on Masimo’s six-person board in a controversial 2023 proxy fight, but announced last month that he would seek two additional seats, including Kiani’s, to consolidate control.

Kiani, 59, pledged 2.97 million Masimo shares in April, valued at $397 million, as collateral for “personal loans.” The company said in its annual report that Kiani had family “financial planning goals” that would require him to sell his shares, but that he “did not want to diminish his holdings.” Its objectives were not specified in the documents.

“The share pledge was pre-approved by the board of directors and reflects Mr. Kiani’s belief in the value of Masimo shares despite the short-term decline in the share price during the second half of 2023” , a Masimo spokesperson said in an emailed statement. . “Rather than sell his promised shares, Mr. Kiani increased his promise to retain his shareholding.”

The spokesperson added that Kiani purchased approximately $7 million worth of Masimo shares during the second half of 2022 and the first half of 2023.

Kiani is a major Democratic donor who is reportedly close to President Biden. He also owns an 8,000-acre winery in Santa Ynez, California, near Santa Barbara. These loans represent an increase from the previous year, when Kiani pledged only 400,000 shares as collateral.

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

Several of Masimo’s peers, such as Agilent, Stryker And Medtronic, do not allow managers to pledge their shares. Companies generally frown on pledging shares, although some, including Masimo, allow it with board approval. Equity-backed loans, or “Lombard loans”, typically require a borrower to sell their shares if they fall below a certain value, which, in the case of large shareholders, can drive down stock prices even further. actions.

Masimo’s previous proxy battle was marked by litigation between the two sides that led to Politan winning $18 million in legal fees after forcing the firm to abandon its efforts to thwart the investment firm. There were also personal attacks. In regulatory filings, the company described Koffey as someone with a “pride” that was “no different from his most prominent counterpart, Bill Ackman.”

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

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

Masimo denied this claim. The company has not yet filed a proxy statement or scheduled an annual meeting.

Masimo has seen some success in recent months. The company filed a high-profile patent lawsuit against Apple, alleging that the company infringed on its pulse oximeter technology for the Apple Watch. After some initial setbacks, Masimo obtained a judgment restricting the sale of certain watches. The two companies remain in negotiations on the subject.

WATCH: Masimo CEO Joe Kiani talks consumer fallout and proxy fighting