Southwest Airlines Fights Back: Activist Investor Elliott Encounters ‘Poison Pill’

Southwest Airlines has decided to serve a hefty helping of “poison pill” to its menu, right after activist investor Elliott Investment Management took a significant bite out of the company’s stock. The airline, synonymous with friendly service and budget-friendly fares, declared on Wednesday that its shareholder rights plan is effective immediately but has an expiration date set for a year from now. Of course, any extension would require a thumbs-up from the shareholders, because even corporate bylaws need a bit of democracy.

The essence of this “poison pill” strategy? It’s activated when a shareholder gobbles up 12.5% or more of Southwest’s common stock. At that point, the rest of the shareholders are invited to a fire sale, where they can purchase stock at a 50% discount. Southwest says this measure is necessary due to several concerns, one biggie being Elliott’s approximate 11% stake in the company. Moreover, Elliott’s capacity to significantly ramp up its voting power in Southwest starting as early as July 11 has everyone at the company on high alert.

Gary Kelly, Southwest’s Chairman, emphasized that the decision was driven by a need to protect all shareholders’ interests. In a rather corporate but heartfelt declaration, Kelly mentioned that Southwest has made genuine efforts to engage amicably with Elliott Investment Management since their initial investment. Despite the turbulence, Southwest remains open to any fresh ideas that promise lasting value creation.

Last month, Elliott made headlines when it was revealed that they had sunk $1.9 billion into Southwest Airlines, with their eyes set on shaking things up in the executive suite. They are looking to replace CEO Robert Jordan and Gary Kelly with executives from outside the company to invigorate the airline’s ailing operational and financial performance. Elliott pointed out that Southwest’s stock price has nosedived more than 50% in the last three years, making this the perfect time for a management overhaul. They’re also pushing for “significant” changes on the board, including bringing in new independent directors who have experience in the airline industry and can bring a fresh perspective.

Southwest, however, is holding strong in its conviction. The company states that it remains confident in Jordan and its current management team, believing they have the capability to steer the airline towards long-term value for shareholders. As the drama unfolds, it’s clear that the future of Southwest’s corporate governance hangs in a delicate balance.

In the stock market’s midday shuffle, Southwest shares managed to add a modest 11 cents, bringing the price to $28.41. Whether this upward tick is a sign of shareholder confidence or just a temporary blip remains to be seen. For now, it’s clear that Southwest Airlines is bracing for a potentially bumpy ride ahead, navigating corporate strategies and investor ambitions.