I wrote last week about the sudden announcement from Masimo Corporation (Nasdaq: MASI) that director Bill Jellison had resigned his position on the board, a position he had held for less than a year. What was remarkable about the Masimo announcement was not so much because of what it said – rather, even more mysterious was what it didn’t say – with no clue offered as to why or under what circumstances this resignation occurred.
Now we know more…and it is big! Former director William “Bill” Jellison is one of two new directors at Medtronic plc (NYSE: MDT), one of Masimo’s biggest competitors in the pulse oximetry segment.
See more on Jellison moving from Masimo to Medtronic
Imagine you are a well-regarded MedTech company whose stock performance has been in a multi-year slump, with an underperforming business unit that is becoming increasingly problematic and is being considered for a spinoff, with longtime investors losing patience. Investors want something to happen to reinvigorate growth. Then an activist investor gets involved, buying a huge stake in the company, becoming its largest single investor, and naming two independent directors it insists management place on the Board of Directors.
Yes, obviously, I’m talking about what has been going on at Medtronic. Oh! Did you think I was referring to Masimo? The similarities between recent events at the two competitors are almost spooky!
Medtronic Announces Jellison is Joining, Masimo Announces Jellison is Leaving
Just days ago, Medtronic’s Board announced it was appointing two new independent directors, John Groetelaars and Bill Jellison. The same day that Medtronic announced its new directors, Masimo announced the resignation of Bill Jellison from its board. It’s quite obvious that Jellison could not serve on the boards of two MedTech companies that are direct competitors.
Helping to fill in the gaps in the sometimes confusing reporting on these events, a source provided Strata-gee with a copy of an investor newsletter from Gordon Haskett, a research advisory firm for investors. In the newsletter, Gordon Haskett noted that both companies were strong in the pulse oximetry business and that it only makes sense that the director of one company could not serve as a director at the other. It went on to say…
This became conversational yesterday when MDT named Bill Jellison to its board as part of an agreement it reached with Elliott Management… Jellison wasn’t at MASI for long but he was there long enough that MASI holders have a reason to be bothered.
Gordon Haskett Research Advisors newsletter, Emphasis added
Who Is Medtronic?
How did we get here? Who is Medtronic?
Based out of Galway, Ireland, Medtronic plc describes itself as a “leading global healthcare technology company that boldly attacks the most challenging health problems facing humanity by searching out and finding solutions.” Compared to Masimo (3,500 employees), which derives about $1.5 billion in revenues largely from its pulse oximetry product line, Medtronic (95,000 employees) generated $33.5 billion in revenues from a huge line of products across 19 different product categories, which includes pulse oximetry.
Over the last few years, especially in the wake of COVID, many investors felt that Medtronic exhibited lackluster performance. Stock values reflected this view, and much frustration was building. Not long ago, Medtronic began considering spinning off an underperforming division known as MiniMed as a way to perhaps stimulate new growth patterns both in this spinoff and with the remaining company.
Investors are Frustrated, Enter Elliott Investment Management
Perhaps connected to this spinoff consideration, word had recently emerged that Medtronic received a significant investment from Elliott Investment Management, an activist investment company. What followed that unspecified amount of investment from Elliott was a period of what Medtronic called “productive dialogue.” It would appear that Elliott wanted two board seats – the Groetelaars and Jellison seats – and they got them as part of this deal.
Most likely, that will temporarily take some heat off the Medtronic Board, for the moment anyway. Interestingly, when this deal went down, the Medtronic stock actually declined in value by 3%. Perhaps this was a result of investors finding out that Medtronic did not get a “standstill” agreement with Elliott, which can help to stave off potential further actions by the activist investor towards a potential hostile takeover.
Mystery Solved; Medtronic Stock Value Dropped as Events Unfolded
In any event, the mystery as to what happened with Jellison is solved, such as it is.
Pressure from unhappy investors had been building up on Medtronic over the last couple of years. These recent events appear to be the steam valve releasing some of that pressure from the pent-up investor frustration. The fact that the sequence of events at Medtronic mimics the sequence of events at Masimo could be a coincidence. Or perhaps executives at Elliott saw the success that Quentin Koffey and Politan Capital Management had at Masimo and chose the pursue a similar path. Whichever is the case, it is the beginning of a new era at Medtronic…and still relatively early days at Masimo.
Learn more about Medtronic by visiting medtronic.com.
See all the latest on Masimo at masimo.com.
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