Southwest Air Takes ‘Poison Pill’ as New Majority Investor Moves In

Southwest Airlines has taken a “poison pill” after activist investor Elliott Investment Management bought a large stake in the company.

The shareholder rights plan is effective immediately and expires in one year, the airline said Wednesday. Southwest shareholders will have to give advance approval for the extension.

Shareholder rights plans, or “poison pills,” allow existing shareholders to buy stock at a discount to prevent a takeover by an outside entity. Southwest’s plan is triggered when one shareholder acquires 12.5% ​​or more of its common stock, allowing all other shareholders to buy stock at a 50% discount.

Southwest said it approved 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 much larger percentage of Southwest’s voting power through two of its funds starting July 11.

“Given Elliott’s potential to significantly increase its stake in Southwest Airlines, the Board has determined that adopting the rights plan is prudent in fulfilling its fiduciary duties to all shareholders,” Southwest Chairman Gary Kelly said in a statement. “Southwest Airlines has made good faith efforts to engage constructively with Elliott Investment Management since its initial investment and remains open to ideas for creating lasting value.”

Last month it was revealed that Elliott had bought $1.9 billion a class In Southwest, he was looking to force the CEO of the airline, which had suffered operational problems and financial problems.

Southwest’s stock price has fallen more than 50% in the past three years, Elliott said in a letter to Southwest’s board of directors. The company also criticized the airline, saying it had failed to evolve, hurting its ability to compete with other airlines. Elliott blamed the Dallas-based company. A large number of flights have been cancelled. In December 2022, the airline issued a statement regarding what it described as outdated software and operational processes.

Elliott is looking for outside executives to replace CEO Robert Jordan and Kelly, and to make “significant” changes to the board, including new independent directors with experience at other airlines.

Southwest said it remains confident in Jordan, his management and his ability to deliver long-term shareholder value. Jordan He said he would not resign and that his leadership team would present a plan in September to boost the airline’s financial performance.

In midday trading, Southwest shares were up 11 cents at $28.41. The company’s shares have fallen about 21% in the past year, while the benchmark Standard & Poor’s 500 index has risen about 25% over the same period.