Dive Brief:

• Masimo received a non-binding offer on July 2 from a company prepared to buy its consumer business for a range of from $850 million to $950 million.
• The offer, which Masimo disclosed Monday in a federal filing, is less than the price the unnamed partner proposed in a term sheet in May and less than what Masimo paid to expand in the consumer market in 2022. Masimo plans to negotiate for a higher price.
• The update comes as Masimo prepares for an annual meeting at which an activist shareholder will try to remove the company’s CEO and founder Joe Kiani from the board of directors. 

Dive Insight:

Masimo, a pulse oximetry specialist, expanded in the consumer space by acquiring Sound United for $1 billion in 2022. The company saw Sound United’s consumer channel expertise as a way to accelerate its expansion beyond healthcare settings. However, Masimo’s share price fell by nearly 37% when the takeover was announced and has never recovered as the company contended with falling sales and an activist investor.   

The company has worked to undo the deal in recent months, outlining plans to split off the consumer business in March and entering into a non-binding term sheet with a potential joint venture partner in May. The potential partner proposed buying a majority stake in Masimo’s consumer audio and consumer health businesses. 

After six weeks of due diligence, the potential partner sent a non-binding term sheet confirmation that said what it is prepared to pay for the consumer business. The confirmation includes an option to extend the exclusivity period through mid-August “as one to two other companies may join the potential [joint venture] and need time to do their due diligence,” Masimo said. 

BTIG analysts said in a note to investors that the proposed purchase price is higher than they expected and “the cash deal would be enough to defray much of [Masimo’s] $876 million debt obligations.” The details of the deal matter though, the analysts added, and talks about the final terms are continuing.

Masimo has proposed licensing intellectual property rights to the joint venture for use in the consumer field but is still discussing the scope of the agreement. Masimo has suggested that it retains the litigation with Apple, which is in a long-running legal dispute over the pulse oximetry features of its Watch devices.

What happens next depends on whether the activist investor, Politan Capital, succeeds in its attempt to secure two seats on Masimo’s board at a meeting on July 25. If Masimo retains both seats, BTIG analysts said the company could sell at least a majority stake in its consumer unit in late 2024 or early 2025. The other option is spinning off the unit to create a public company, which could happen in mid-2025.  

If Politan wins both board seats, the analysts said Masimo could provide an interim update on a review of its product portfolio and cost structure around the end of October. In that scenario, the analysts expect Masimo to sell the consumer audio business in 2024.