Southwest forms Rights Plan to mitigate activist investor’s impact
Southwest Airlines has adopted a limited-duration Shareholder Rights Plan, implemented in response to a “significant [share] accumulation by Elliot Investment Management,” which has repeatedly criticised the airline’s leadership over the last couple of months.
In essence, this strategy is “designed to deter the acquisition of actual, de facto or negative control of Southwest Airlines by any person or group without appropriately compensating its shareholders for that control,” explains Southwest.
With the activist investor having recently built an economic interest of around 11% in Southwest – alongside making “making regulatory filings with US antitrust authorities that would provide it the flexibility to acquire a significantly greater percentage of Southwest Airlines’ voting power… starting as early as July 11” – the carrier’s board of directors has therefore adopted the new Rights Plan, effective immediately with the duration of one year.
One right will be allocated for each share of stock, with the rights able to be exercised in the event that a person or group purchases 12.5% or more of the company’s outstanding common stock. At this “trigger point,” other shareholders will be able to buy new shares at a 50% discount.
Alongside its almost $2 billion investment into the airline, Elliot Investment Management has nevertheless severely criticised the carrier’s “poor execution and leadership’s stubborn unwillingness to evolve,” outlining its vision for a “Stronger Southwest” in June 2024. “As one of Southwest’s largest investors, we are committed to delivering the necessary leadership changes to achieve this goal [of regaining industry leadership],” concluded Elliot.
At the time, Southwest’s board and executive leadership team firmly refuted these claims, stating: “We are confident that Southwest Airlines has the right strategy, the right plan and the right team in place to drive long-term value for our shareholders”.
Noting that Southwest Airlines has “made a good faith effort to engage constructively with Elliot Investment Management since its initial investment,” it now remains “focused on restoring [its] industry-leading financial performance and building a sustainable and profitable future for the airline and its Shareholders,” explained Gary Kelly, executive chairman of the board.
