Masimo CEO Joe Chiani pledged $400 million in Masimo stock for loans

Billionaire Massimo founder Joe Kiani, best known for his successful legal battle against An apple and his friendship with President Joe Biden, has taken out a loan against half of his $660 million stake in the health technology company rather than sell his stock, according to corporate documents from earlier this week.

Borrowing against such a large stake is unusual for executives, but could be useful as the company prepares for a battle with an activist seeking to take control of the board. The move allows Kiani, the company’s CEO and chairman, to keep his stake and voting rights while getting cash he says he needs for family reasons.

Many medtech peers forbid such moves, and that could leave Chiani susceptible to margin calls if Masimo’s stock falls below a certain threshold. Kiani owns just under 4 million Masimo shares, or about 7.5 percent of the company, according to FactSet data.

Masimo, which makes wearable devices and health monitoring products, is preparing to fend off a second proxy battle led by Quentin Coffey’s Politan Capital Management. Chiani described Coffey as “disruptive” in a March interview with CNBC.

Shares of Masimo are up 15% year to date, pushing the company’s market cap above $7 billion. The stock had a choppy run in the last half of 2023, falling 47% in the third quarter before rising 34% in the fourth.

Politan controls 8.9% of Masimo’s shares. Although this is larger than Kiani’s share, even before the stakes are weighted, regulatory documents show the CEO has options that could increase his holdings to 9.2% if exercised.

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

Chiani, 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 Chiani had family “financial planning objectives” that would require him to sell his shares, but that he “does not wish to reduce his shareholding”. Its objectives are not specified in the documents.

“The share pledge was pre-approved by the Board and reflects Mr. Chiani’s belief in the value of Masimo’s shares despite the short-term share price decline in the second half of 2023,” a Masimo spokesman said in an emailed statement. “Instead of selling his promised shares, Mr. Kiani upped his stake to retain ownership of his shares.”

The spokesman added that Kiani bought about $7 million worth of Masimo shares in the second half of 2022 and the first half of 2023.

Chiani is a major Democratic donor who is said to be close to the president. He also has an 8,000-acre winery in Santa Ynez, California, near Santa Barbara. The lending is an increase from the previous year, when Kiani pledged just 400,000 shares as collateral.

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

Several of Massimo’s peers, such as Agilent, Striker and Medtronic, do not allow executives to stake their shares. Companies generally frown on stock betting, although some, including Masimo, allow it with board approval. Equity-backed lending, or “pawn loans,” typically require the borrower to sell their shares if they fall below a certain value, which in the case of large shareholders can cause the share price to fall further.

Masimo’s earlier proxy battle was marred by litigation between the two sides, which resulted in Politan winning $18 million in legal fees after forcing the company to drop its efforts to thwart the investment firm. There were also personal attacks. in regulatory documentsthe company described Coffey as a man with “arrogance” who was “not unlike his more famous colleague Bill Ackman”.

Major shareholders, including Vanguard, sided with the activist investor who said Massimo was marred by poor management practices and the acquisition of Sound United, a consumer audio company. Shares of Masimo tumbled 37% on the day of the deal announced in February 2022

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

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

Massimo has had some success in recent months. The company filed a high-profile patent lawsuit against Apple, claiming the company infringed on its pulse oximeter technology for the Apple Watch. After some initial setbacks, Massimo won a ruling that restricted the sale of some watches. The two companies continue to negotiate on the matter.