Southwest Airlines Co. stakeholder Elliott Investment Management L.P. is calling for a special shareholder meeting on December 10 to implement changes to the board and replace CEO Bob Jordan and Executive Chairman Garry Kelly.
The activist hedge fund Elliott has pushed Southwest to make drastic changes. The airline’s stock price has declined by more than 50% since 2021, with this year’s decline accounting for 10% of the company’s value. The turbulence began in June when Elliott announced it would take a stake of over 10% in Southwest—worth about $1.9 billion—allowing it to have a say in the airline’s leadership.
“Southwest’s poor execution and leadership’s stubborn unwillingness to evolve the Company’s strategy have led to deeply disappointing results for shareholders, employees, and customers alike,” the hedge fund said in a statement released on June 10.
In response, Southwest implemented a shareholder rights plan, also known as a “poison pill,” discouraging investors from acquiring more than 12.5% of the company.
The airline announced a $2.5 billion stock buyback plan on September 26, as well as plans to increase profits by eliminating the airline’s unassigned seating policy and implementing charges for extra legroom seating. “These changes have been in the works for a long period of time,” Jordan said. “For Elliott to call that plan rushed and haphazard, in my opinion, is insane.”
The company had already announced that Jordan would step down as CEO in 2025, with six other board members stepping down in 2024. However, Elliott’s demands included nominating 10 out of 15 board members.
Since negotiations began, Southwest has reduced the board from 15 members to 12, with Elliott agreeing to nominate eight directors to align with the smaller board size. Elliott’s aim was not to gain control, but to secure representation on Southwest’s board.
The companies have started negotiations to avoid a proxy war, which occurs when shareholders dissatisfied with management seek to enforce changes through a corporate vote.
The last major proxy fight occurred in 2017 between Elliott and Arconic Corp., an aerospace and automotive manufacturing company specializing in lightweight metals. After acquiring 13% of the total stock, Elliott pushed for management changes to improve the company’s performance, resulting in Arconic CEO Klaus Kleinfeld stepping down and a settlement that allowed Elliott to appoint three new members to Arconic’s board.
The Southwest-Elliott proxy war initially caused a 1.26% dip in the airline’s stock price, although subsequent settlement discussions later stabilized the stock, according to Bloomberg.
As Elliott awaits confirmation of the special meeting, it emphasizes the need for “shareholders’ voices to be heard” in a statement. “Electing a world-class slate of exceptional director candidates is the essential first step to making this happen.”
