Southwest Airlines has implemented a “poison pill” strategy to thwart activist investor Elliott Investment Management from gaining more control over the company. The plan, officially known as a “limited-duration shareholder rights plan,” is now in effect and will last for one year unless extended with shareholder consent. If any individual or group acquires 12.5% or more of Southwest’s outstanding common stock, current shareholders will have the option to purchase additional shares at a 50% discount.
This move would decrease the ownership of the potential buyer, making it harder and costlier for them to take over the company. Elliott currently holds roughly 11% of Southwest shares and has been advocating for significant alterations in the company’s management and strategy. The firm believes its strategy could boost Southwest’s stock to $49 per share within a year, yielding a 77% return.
Southwest’s board introduced the measure in response to mounting pressure from Elliott and concerns regarding the firm’s ability to significantly enhance its voting authority.
Southwest guards against activist involvement
“Given the possibility of Elliott expanding its position in Southwest Airlines, the board decided that implementing the Rights Plan is necessary to fulfill its responsibilities to all shareholders,” stated Gary Kelly, executive chairman of the board.
Southwest CEO Bob Jordan has shown confidence in the current management team and intends to unveil a plan to enhance the airline’s financial performance in September. Despite the ongoing challenges, Southwest’s stock slightly increased post the announcement of the poison pill strategy. The airline has been grappling with difficulties like an oversaturated domestic market and delays in aircraft deliveries.
Even prior to Elliott’s investment, Southwest was under pressure to enhance revenue and had been considering alterations to its business model, like potentially introducing seating assignments and premium seating. Elliott Management has a track record of successful activist campaigns and is one of the most prosperous hedge funds globally, with assets exceeding $65 billion. The firm did not immediately respond to a request for comment on Southwest’s poison pill strategy.
