'Poison Pill' Activated: Southwest Airlines Counters Elliott Investment's Move With Defense Strategy

Southwest Airlines Company LUV has implemented a limited-duration shareholder rights plan in response to an 11% stake by Elliott Investment Management.

Gary Kelly, Executive Chairman of the Board, said, “In light of the potential for Elliott to significantly increase its position in Southwest Airlines, the Board determined that adopting the Rights Plan is prudent to fulfill its fiduciary duties to all Shareholders.” 

The plan takes immediate effect and will last for one year, with any extension requiring shareholder approval.

The rights plan 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.

Pursuant to the plan, Southwest Airlines is issuing one right for each share of common stock. The rights will generally become exercisable only if any person or group acquires a stake of 12.5% or more.

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In a release dated June 26, Elliott raised questions on the company’s leadership capabilities. “Fundamental leadership change is urgently needed at Southwest. Elliott is committed to delivering the leadership changes that the company requires,” it said.

However, Kelly highlighted today that the company is now open to new ideas.

“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 lasting value creation,” Kelly added.

Last month, the company lowered its outlook for second-quarter unit revenues.

The company said it anticipates a 4% to 4.5% decline in operating revenue per available seat mile (unit revenues), contrasting sharply with the previous expectation of a 1.5% to 3.5% decrease.

Southwest Airlines said in an exchange filing that the reduction was driven primarily by the complexities of adapting revenue management to current booking patterns in this dynamic environment.

However, despite lowered expectations, the company continues to expect an all-time quarterly record for operating revenue in the second quarter of 2024.

Price Action: LUV shares are trading higher by 0.39% to $28.40 premarket at last check Wednesday.

Image by Around the World Photos via Shutterstock

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