Southwest Airlines Implements “Poison Pill” Strategy as Activist Investor Elliott Acquires Substantial Stake

Southwest Airlines has implemented a shareholder rights plan, also known as a ‘poison pill,’ in response to activist investor Elliott Investment Management acquiring a significant stake in the company. The plan, which lasts for a year but can be extended with shareholder approval, allows existing shareholders to purchase shares at a discounted rate to deter an outside takeover. It is activated if a shareholder obtains 12.5% or more of Southwest’s common stock, enabling other shareholders to buy shares at a 50% discount.

The decision to adopt the rights plan was influenced by Elliott’s ownership of about 11% of Southwest’s shares and its potential to increase its voting power significantly through two of its investment funds starting on July 11. Southwest’s Chairman, Gary Kelly, stated that the board deemed it necessary to implement the plan to uphold its responsibilities to all shareholders. Despite engaging positively with Elliott since its initial investment, Southwest remains open to suggestions for creating lasting value.

Elliott had disclosed a $1.9 billion investment in Southwest and expressed intentions to remove the airline’s CEO due to operational and financial challenges. Criticisms included a more than 50% drop in Southwest’s stock price over three years, failure to adapt to evolving industry demands, and December 2022 flight cancellations attributed to outdated software and operational procedures.

Elliott is advocating for leadership changes at Southwest, proposing that executives from outside the company replace the current CEO and Chairman, along with significant alterations to the board composition. In contrast, Southwest has expressed confidence in its current management’s ability to enhance shareholder value, with CEO Robert Jordan announcing plans for improving the airline’s financial performance in September.

In trading, Southwest Airlines shares rose by 11 cents to $28.41. Over the past year, the company’s stock has declined by approximately 21%, while the S&P 500 index has increased by around 25% during the same period.