Southwest Airlines took a “poison pill” after activist investor Elliott Investment Management took a large stake in the company.
The airline announced Wednesday that the shareholder rights protection plan would take effect immediately and expire in one year. Southwest shareholders would need to give their prior consent for an extension.
Shareholder rights plans, or “poison pills,” allow existing shareholders to acquire shares at a discount to discourage a takeover by an outside entity. Southwest’s plan is triggered when a shareholder acquires 12.5% or more of its common stock, which would allow all other shareholders to buy shares at a 50% discount.
Southwest said it adopted the rights plans because of several concerns, including Elliott’s roughly 11% stake in the company and the flexibility the company has to acquire a significantly larger percentage of Southwest’s voting power in two of its funds as early as July 11.
“Given Elliott’s potential to significantly increase its position in Southwest Airlines, the board determined that the adoption of the rights plan was prudent to fulfill its fiduciary duties to all shareholders,” Southwest Chairman Gary Kelly said in a statement. “Southwest Airlines has made a good faith effort to engage constructively with Elliott Investment Management since its initial investment and remains open to any ideas for sustainable value creation.”
Last month it was revealed that Elliott had purchased a $1.9 billion stake bet in the southwest and sought to force the resignation of the airline’s CEO, who has had operational difficulties and financial problems.
In a letter to Southwest’s board, Elliott then said Southwest’s stock price had fallen more than 50% in the past three years. The company also criticized the airline, saying it had failed to evolve, hurting its ability to compete with other carriers. Elliott blamed the Dallas-based company Massive flight cancellations in December 2022 over what it describes as the airline’s outdated software and operational processes.
Elliott is seeking outside leadership to replace CEO Robert Jordan and Kelly, and “significant” changes to the board, including new independent directors with experience at other airlines.
Southwest said it remains confident in Jordan and his management and their ability to generate long-term value for shareholders. For its part, Jordan said he would not resign and that in September his management team would present a plan to improve the airline’s financial performance.
In pre-market trading, Southwest shares added 7 cents to $28.36.
