NEW YORK — Medical device maker Masimo Corp on Monday said it changed its bylaws to eliminate requirements that would have forced investors seeking to nominate directors to the firm to reveal information that hedge funds consider to be top secret.
The decision removes the company’s widely criticized bylaw amendments, adopted late last year, after an activist investment firm built a stake in the company.
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The changes instituted in September 2022, which were being challenged in court, sent shock waves through the activist investment industry, sparking talk they might stop corporate agitators from pursuing their strategies.
Any hedge fund nominating directors at Masimo would have been required to identify its own clients and to say whether it planned to nominated directors at other companies. This prompted fears that other companies might adopt similarly detailed bylaw requirements.
But on Monday, Masimo backed off. It said in a regulatory filing it has “adopted amended and restated bylaws” which revert to the Second Amended and Restated Bylaws of the Corporation, dated as of October 24, 2019.”
“While the Board continues to believe that additional transparency would benefit shareholders, (it) amended the bylaws to eliminate any suggestion that Masimo is seeking to preclude shareholders from nominating directors,” the company said in a statement.
The drama began late last year when Politan Capital Management, which owns an 8.9% stake in Masimo and is run by Quentin Koffey, hinted at plans to seek board seats. Quickly, Masimo updated its bylaws. Politan sued Masimo, which has a market capitalization of $9.1 billion, in October in Delaware Chancery Court.
“We are glad to see Masimo repeal its widely criticized and illegal bylaw amendments,” a spokesman for Politan said.
BYLAW REVERSAL
The reversal on the bylaws comes only days after the case began drawing new attention. On Thursday, the hedge fund industry association MFA backed activist firm Politan’s lawsuit against Masimo to reverse “draconian” amendments by filing an amicus curiae, or friend of the court brief.
The case was being widely watched in corporate America as activist investors increasingly push companies, such as Walt Disney and Salesforce, for changes.
“Masimo apparently capitulated and completely undid its bylaw amendments to ‘moot’ the lawsuit, said Kai Liekefett, who defends corporations against activist investors as co-chair of law firm Sidley Austin’s shareholder activism and corporate defense practice.
But the lawsuit continues, with the two sides squaring off over Masimo chief executive Joe Kiani’s contract that would permit him to walk away with millions of dollars in compensation if there were a change of control and one third of the board is changed within 24 months.
Last week, Masimo lost its motion to dismiss claims challenging certain aspects of Kiani’s employment agreement.
“It is disappointing that this action only comes after the Company lost its motion defending its CEO’s egregious change of control agreement – which would pay Kiani more than 5% of Masimo’s value, or approximately $500 million, if shareholders voted to elect a minority slate of directors to the Board, or even if the Board simply selected a lead independent director,” a spokesman for Politan said.
“In our view, Masimo’s decision to abandon the bylaws it so vociferously claimed were in the best interests of the Company and its stockholders, in order to focus on protecting its CEO’s compensation agreement, speaks volumes.” (Reporting by Svea Herbst-Bayliss Editing by Bernadette Baum)