Masimo
(Nasdaq: MASI)
will move forward with a proposal by Chairman and CEO Joe Kiani to separate the medtech developer from its consumer business.
Kiani would remain chair and CEO of Irvine, California–based Masimo and serve as chair of the new consumer company, which includes Sound United parent company Viper Holdings that Masimo bought for $1.025 billion in 2022.
The Sound United deal was a sore spot with some investors, fueling a fight with an activist investor who won two seats on Masimo’s board last year.
In a Masimo news release issued after markets closed today, Kiani said he proposed the separation in January and that the board of directors has authorized his management team to evaluate the move, with the board and management both planning to evaluate the proposed structure.
The company said it expects the move will improve the profitability of its healthcare business. Under the proposal, the separated company would include consumer audio and consumer health products such as the Stork baby monitor and the Freedom smartwatch and band, while Masimo would keep its professional healthcare and telehealth products.
Masimo said it planned to separate the businesses “as soon as feasible,” pending due diligence, definitive agreements and regulatory approval.
“I truly believe there is tremendous opportunity to increase not just the lifespan but the healthspan of people by taking healthcare into the home,” Kiani said. “We have unique and necessary technologies to make what I’ve been calling 22nd Century healthcare happen in the next few years.”
Masimo also reaffirmed its financial guidance for the first quarter and fiscal 2024.
BTIG analysts called the development “a major twist that is likely to be welcomed by shareholders” in a note to subscribers after the investment firm spoke with Masimo management.
“There is an emphasis on continuity of vision for the employees, customers, and other stakeholders involved with both businesses,” BTIG’s Marie Thibault and Sam Eiber said. “This announcement is a formal kick-off of the process, and the timeline is likely to depend on what options are pursued. Management had said since the early days of the Sound United acquisition that it would remain open to evaluation.”
“We are applauding this move, and with shares moving sharply higher in Friday’s after-market, shareholders are clearly pleased,” they continued. “The Healthcare business has significantly better gross margins and operating margins than the non-Healthcare business, and we think should allow for a return to strong cash flow generation.”
