Key Takeaways
- Elliott Investment Management disclosed Tuesday that it has more than 10% ownership of Southwest Airlines, giving it the right to call a special meeting.
- The hedge fund has been critical of the airline’s management, and has announced a slate of candidates for Southwest’s board.
- Southwest has rejected Elliott’s efforts, recently adopting a so-called “poison pill” defense to deter the firm from gaining enough shares to win control or take over the airline without the board’s consent.
Shares of Southwest Airlines (LUV) gained Tuesday on confirmation that hedge fund Elliott Investment Management now holds a sufficient stake in the airline to call a special meeting as it seeks to shake up the company.
In a regulatory filing Tuesday, Elliott disclosed that it now owns more than 61 million shares of Southwest, putting it over the 10% threshold needed to demand a special meeting.
The news came after the hedge fund announced Aug. 13 that it intended to nominate 10 members to the board as part of its effort to improve Southwest’s stock price. Elliott said at that time that it held a roughly 11% stake in the airline.
Elliott argued then that the current board “has delivered poor returns for shareholders and has not held management accountable for Southwest’s unacceptable performance, or a new Board that brings relevant expertise, fresh thinking and accountability.” It said “urgent changes” were needed at the airline.
Southwest Executives Criticized by Elliott
Elliott followed that up about two weeks later with an open letter to shareholders spelling out its “framework for change.” The letter blasted Chief Executive Officer (CEO) Bob Jordan and former CEO and current Executive Chair Gary Kelly for their failure to address the needs of the company.
The letter noted that the hedge fund would be holding meetings with representatives of Southwest on Sept. 9, and it hopes to win over members of the board who agree with its position.
For its part, Southwest reacted to Elliott’s efforts by adopting a one-year “poison pill” defense earlier this summer, and has complained that the activist investor made no effort to engage management about constructive changes.
Southwest Airlines shares were essentially flat year-to-date through Friday’s close before advancing 1.3% Tuesday afternoon to $29.29.