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Poison pills are euphemistically known as “shareholder rights plans.” The rights in question specifically belong to the shareholders holding just under 50% of a company after a hostile acquirer has built up a 50% plus one share stake, namely the right not to be screwed over by the new majority owner’s new hand-picked board of directors and management. In practice, the only rights most poison pills protect are those of what would be the previous management to remain employed by what would be the former directors. Still, the fig leaves of reasonableness, proportionality, and non-perclusive- and non-coercive-ness remain.

Medtech firm Masimo Corp. certainly has reason to believe activist hedge fund Politan Capital Management has intentions toward it. For one, Politan owns an 8.9% stake in Masimo. For another, it is led by a Paul Singer protégé. Finally, Politan is indeed seeking seats on Masimo’s board. In crafting its poison pill in response, however, Masimo seems to have thrown reasonableness and proportionality to the wind for something more perclusive and coercive.

Those provisions would award Masimo Chairman and Chief Executive Officer Joe Kiani “hundreds of millions of dollars” if only two of the company’s five directors are replaced, according to Politan. Two Masimo directors are up for re-election at this year’s annual general meeting.

We suppose this would protect one shareholder’s rights, namely those of Kiani, although that would be stretching an already fairly transparent euphemism to something like a breaking point.

Masimo requires shareholders nominating directors to disclose some of the investors in their own funds. Its bylaws also now require dissidents to disclose their investors’ holdings in other companies and even those of their family members. Politan argues that some investors “would be unwilling, unable or contractually prohibited from disclosing” that information…. Dissidents such as Politan are now required to reveal other Masimo investors they have spoken with and who support their push for change. They must also disclose any other companies in which they have nominated directors in the past 36 months, as well as plan to do so, in the coming year.

Alas, even the very understanding chancellor and vice chancellors of Delaware might think this is all rather a few dozen steps too far.

“This would be a show-stopper in lots of cases, and I think they know that,” [George Washington University Law School professor Larry] Cunningham said in an interview. “There’s a very good chance that the Delaware courts would reject this as an invalid exercise of corporate power….”

“Is this a thinly veiled attempt to stop activism?” asked Michael Klaunser, a Stanford Law School professor. “No. It’s not veiled at all; it’s utterly clear.”

And in such cases, who needs euphemism?

Masimo Investor Politan Sues to Block Activist Rule Changes [Bloomberg]

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