Southwest Tries to Fend Off Elliott With 'Poison Pill'

Southwest Airlines’ board of directors approved a limited-duration shareholder rights plan in response to Elliott Investment Management’s 11% stake in the company. 

The carrier said the plan — known as a “poison pill” — was designed to deter any person or group from acquiring a controlling stake in the company without properly compensating other shareholders. The plan will expire in one year, with any extension requiring shareholder approval.

The plan also only goes into effect if any person or group acquires at least 12.5% of the company, according to a regulatory filing Southwest posted Wednesday morning. 

Southwest said Elliott has filed regulatory filings with antitrust authorities that could allow it to acquire greater interest in the airline as early as July 11. These filings, known as HSR filings, have a 30-day waiting period, which could suggest that Elliott made the filing around the same time it announced its stake in Southwest. The hedge fund said it had a $1.9 billion stake in Southwest in June, making it one of the carrier’s largest investors. 

“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,” Southwest chairman Gary Kelly said in a statement. 

Elliott did not immediately respond to a request for comment. 

Southwest Says It Has Been in Talks With Elliott

Elliott has been pushing for Kelly and CEO Bob Jordan to resign ever since the news of its stake became public. The hedge fund has argued that a leadership change would allow the carrier to turn around its recent underperformance and make significant changes to its business model. 

Kelly said Southwest has “made a good faith effort” to engage with Elliott since its initial investment. 

In 2024, Southwest has so far underperformed. The carrier recently lowered its outlook for the second quarter, which further prompted Elliott to advocate for leadership changes. Southwest has struggled with a range of issues including Boeing delivery delays, higher labor costs and softened demand for their economy products. 

Jordan has previously said that the company is considering adding a premium product to its cabins and doing away with its open boarding process. 

Elliott, the Activist Shareholder

Elliott has been long known for pushing for major changes at companies whenever it takes up an activist stake. More recently, the hedge fund's shareholder activism has led to the resignations of CEOs at Crown Castle and NRG.

The firm is also not new to the travel industry — it has taken up stakes in Dean Hotels and Travelport in the past.

Another of Southwest's investors, Artisan Partners, sent a letter to the carrier's board June 12 saying it also supported a leadership change. Artisan Partners currently has around a 1.82% stake in Southwest.

Jordan has so far said he has no plans to resign and that the airline was ready to adapt its business model to fit current consumer preferences.

“You can’t be stubborn,” Jordan said at a June 12 Politico event. “If customer demands are changing and expectations are changing you must change with them while being true to what you stand for.”