Southwest Airlines takes on rights plan to fend off activist Elliott Management | Wilnesh News

Southwest Airlines The company said on Wednesday it had adopted a shareholder rights plan, often referred to as a “poison pill,” in response to activist Elliott Management’s investment in the airline and a push to oust CEO Bob Jordan and directors Long Gary Kelly.

The poison pill would only be activated if Elliott or another investor acquired at least 12.5% ​​of the company. If this threshold is exceeded, all other shareholders will be entitled to purchase one new Southwest stock at a 50% discount for each share they currently hold.

Southwest Airlines shares rose 1% on Wednesday following the announcement. Other major U.S. airlines also posted gains.

Elliott disclosed in June that the company had taken a stake worth $1.9 billion, or about 11% of Southwest. The company noted that Southwest is underperforming compared with some of its larger airline competitors that offer more offerings, such as premium seats.

Southwest said the poison pill was prompted in part by Elliott’s filings with antitrust agencies, known as HSR filings, that would allow the activist to acquire a larger stake by next week. There is a 30-day waiting period after filing an HSR filing, suggesting Elliott began the process in June when it disclosed its stake.

“Since its initial investment, Southwest has made a good faith effort to engage constructively with Elliott Management and is open to any ideas that create lasting value,” Kelly said in a statement. People familiar with the matter revealed, Elliott and Southwest management met face-to-face just two weeks ago.

Such a provision would weaken Elliott’s influence and voting power. Companies often adopt shareholder rights programs to counter activist threats; rental car companies hertz Adopted The poison pill of 2013 Management believes this is in response to “unusual” trading activity and a sign of aggressive action.

Southwest’s board backed Elliott’s leadership after the company disclosed its ownership stake. Jordan said last month he had no plans to resign.

The Dallas-based airline has been facing problems, including oversupply in the domestic market where its network is concentrated and long delays for new aircraft from the United States. boeing company.

Even before Elliott’s investment to boost revenue, Southwest was already under pressure and said it was looking at major changes to its long-term business model, possibly increasing seat allocations and even premium seating. The airline has been wildly successful for much of its history, turning a profit for much of its more than five decades of flying, an outlier in a boom-and-bust industry.

Elliott has launched campaigns at other companies, e.g. AT&T, sales force and Texas Instruments.

Elliott’s aggressive approach has helped it become one of the world’s most successful hedge funds, with assets of more than $65 billion. The company moved its headquarters from New York to West Palm Beach, Florida, in 2020 and has only experienced losses in two years in five years.

Bank of America and Morgan Stanley serve as Southwest’s bankers. Southwest’s attorneys are Vinson & Elkins and Kirkland & Ellis, two law firms with strong reputations for activist defense practices.

Elliott did not immediately respond to a request for comment.