The Southwest Airlines board of directors recently made a move to defend the company against the actions of activist investment firm Elliott Management. The board announced the adoption of a one-year rights plan, commonly referred to as a poison pill, with the aim of thwarting Elliott’s efforts to increase its ownership stake in the airline.
As of June 10, Elliott had acquired $1.9 billion worth of Southwest shares, representing an 11% ownership share in the company. The hedge fund is known for its history of pushing for changes in the management of companies it targets. In this case, Elliott is calling for the removal of Southwest CEO Bob Jordan and chairman Gary Kelly.
Under the rights plan adopted by Southwest, if a single shareholder or entity reaches 12.5% or more ownership of the company’s outstanding common stock, all other shareholders will have the option to purchase additional shares at a 50% discount. Alternatively, the company may choose to issue additional shares to existing shareholders, excluding the entity triggering the rights issuance.
According to Southwest, Elliott has filed regulatory documents indicating its intention to acquire a larger percentage of the airline’s stock starting July 11. The airline also mentioned that it is unsure of Elliott’s current full position, as the hedge fund has not disclosed this information to the Securities and Exchange Commission.
Travel Weekly has reached out to Elliott for comment on the situation. The hedge fund previously outlined a plan that it believes could drive Southwest’s shares up to $49 within the coming year. This is a significant increase compared to the current trading price of around $30 per share.
Elliott’s plan includes the immediate removal of CEO Bob Jordan, the addition of new board members independent of current leadership, the recruitment of a new CEO, and a thorough business review to revamp Southwest’s commercial and operational strategies. The goal is to enhance profitability and modernize the airline’s business model.
In recent years, Southwest Airlines has faced challenges that have impacted its financial performance. While the carrier had the highest profit margin among the top four U.S. airlines in 2018, it is expected to have the lowest margin this year, trailing behind competitors like Delta, United, and American. Additionally, Southwest’s stock price remains significantly below pre-pandemic levels.
To address these issues, Southwest has implemented a new operational plan, increased investments in IT infrastructure, adjusted capacity forecasts, and hinted at potential changes to its seating and cabin configurations. These modifications are expected to improve revenue generation and support the airline’s path to recovery.
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