The investment hedge fund Elliott has called for a December special meeting of the Southwest Airlines board of directors as it pushes for major changes at the Texas-based airline.
Southwest Airlines has also confirmed that Elliott Investment Management L.P. requested a Special Meeting of Shareholders to consider Elliott's proposals, including to remove without cause eight members of Southwest's Board of Directors and elect eight Director candidates chosen by Elliott, which as per Southwest, appears designed to result in full control of the Board by Elliott's nominees.
Southwest's Board issued the following statement in response:
"Elliott's Special Meeting request is unnecessary and inappropriate considering the extreme nature of Elliott's demands. The timing of Elliott's request to apparently pursue Board control appears designed to maximize disruption of Southwest's execution of its important business transformation underway as we approach one of the busiest travel periods of the year."
"Elliott's actions highlight its lack of understanding of Southwest's business and its insatiable need to put its own interests ahead of those of all Shareholders."
"Before and since Elliott launched its campaign in June, the Board has had extensive dialogue with a significant number of Southwest Shareholders. The Board's actions have been rooted in feedback from these conversations, including the comprehensive Board and governance changes recently announced."
Elliott, the activist investor group that now holds an 11% financial stake in the Dallas air carrier, has requested a Dec. 10 special meeting to consider its names for the new Southwest board of directors.
What we see here could be the official start of a long-awaited proxy fight for control of the Southwest Airlines board of directors and overall control of the company, and likely that of its CEO.
It's New York-headquartered Elliott's first board proxy fight since 2017. It arrived after a Sept. 26 "investor day" event at which Southwest reiterated plans aimed at expanding revenue.
In response to investor pressures, Southwest Airlines has laid out an ambitious growth strategy during its Investor Day held on September 26. The airline revealed a plan aimed at generating an additional $4 billion in revenue by 2027, banking on new offerings such as extra-legroom seating and an assigned seating system slated for the summer of 2026.
Furthermore, Southwest is diversifying its operations by establishing partnerships with airlines such as Icelandair and rejuvenating its vacation package services, anticipated to relaunch by mid-2025.
The upcoming December initiative emphasizes a stark divide between the current board’s approach and Elliott’s vision for the airline’s future. Shareholders will be asked not only to support an entirely new slate of eight board candidates but also to remove eight members from the existing board, including Gary Kelly, the chairman, who is already slated to step down in May.
The call for a special meeting has been in the works for some time now. Around September, Elliott, one of the world's largest activist funds, crossed the 10% threshold needed to call for a special meeting with eyes on a possible hostile takeover.
Elliott Investment Management LP has launched similar challenges at companies such as Starbucks, AT&T, Salesforce and Texas Instruments -- but never an airline.
For its invasion into the Carrier's management, Elliott has sought to remove Southwest CEO Bob Jordan. But the company has stood by Jordan.
After a meeting between Southwest and Elliott officials, last month it was revealed six Southwest board members would soon voluntarily resign and four new independent directors will step in "the near future, including due consideration of up to three of Elliott's candidates," according to Southwest's ex-CEO and outgoing board chair.
Amid the pending board shakeup, in September the company's former CEO and current executive chairman Gary Kelly announced that he will retire fully from Southwest later next year as Elliott kept up pressure.
Southwest, in its statement, added further,
"Southwest also heard Shareholders' resounding preference that the Company engage with Elliott and seek to avoid a protracted dispute. The Board has made every effort to reach a constructive resolution, including providing a reasonable settlement framework under which the Board would interview Elliott's candidates and appoint up to three to a reconstituted 13-member Board that would be reduced to 12 following Executive Chairman Gary Kelly's retirement at the 2025 Annual Meeting of Shareholders."
"For Elliott's part, its latest framework for settlement reflects its continuing interest in seeking effective control of both the Board and management, including by installing Robert Milton, former CEO of Air Canada and a member of Elliott's Board slate, as Executive Chair of Southwest."
Elliott's slimmed-down board slate now include eight, down from 10, after Southwest in a separate move took steps to shrink its board size down to 12 from 15.
Elliott has submitted a proposal to elect the following eight director candidates to Southwest's Board:
Elliott has also submitted a proposal for the removal of eight current Southwest directors: Douglas Brooks, Eduardo Conrado, William Cunningham, Thomas Gilligan, David Hess, Gary Kelly, Elaine Mendoza and Jill Soltau.
"The nominees we have put forward today are uniquely qualified to hold the company's executive leadership accountable and ensure that the company delivers improved results," Elliott partner John Pike and portfolio manager Bobby Xu said in a company statement.
The new proposal calls for the removal eight of Southwest's current board of directors: Douglas Brooks, Eduardo Conrado, William Cunningham, Thomas Gilligan, David Hess, Gary Kelly, Elaine Mendoza and Jill Soltau.
In addition, Elliott is pushing for the election of eight new hand-picked candidates with a wide array of experience to replace the the other eight.
Listed above, Elliott has selected a number of retired government officials, former airline and other business executives of United Airlines, Virgin America, Air Canada, WestJet, Marriott International and Hawaiian Airlines.
Elliot's proposed board lists Michael Cawley, who was a top executive at Ryanair for a number of years rising to the role of COO and deputy CEO; Dave Grissen, ex-Group President of Marriott International; Gregg Saretsky, the former CEO of WestJet; David Cush, former CEO of Virgin America; and Robert Milton, ex-CEO of Air Canada and ACE Aviation Holdings and the former chairman of United Airlines.
The New York-based Elliott called on Southwest on Monday to confirm its Dec. 10 date request "and to publicly announce a reasonable corresponding record date promptly, without any gamesmanship or defensive maneuvers," Elliott said in its statement.
"It is time for shareholders' voices to be heard, so that Southwest can finally deliver on its full potential for customers, employees and shareholders alike," according to Elliott officials.
On this development, Southwest's statement read as,
"Unfortunately, Elliott remains entrenched in demanding control of the Board, while continuing to block its Director candidates from being interviewed by the Board's Nominating and Corporate Governance Committee, making it impossible to find a constructive resolution."
"For nearly four months, Elliott has failed to offer any substantive feedback on Southwest's strategic plan. The Company was encouraged that Elliott might be turning the page ahead of Investor Day, when it requested a preview of Southwest's Investor Day materials as a condition to engaging in settlement discussions."
"After providing Elliott a detailed, in-person preview of the Company's plan more than a week before Investor Day, Elliott failed to provide input and continued its public attacks ahead of and following Investor Day."
"Elliott's failure to provide actionable feedback, coupled with the disruptive nature of its demands, should give Shareholders pause about Elliott's true intentions."
Southwest also mentioned that the Board will carefully review the Special Meeting request in accordance with its fiduciary duties, Texas law and the Company's bylaws, including Elliott's stated request to hold the meeting on December 10, 2024.
Southwest's Board says that it intends to discuss the process for setting a Special Meeting with Elliott in a constructive manner. The Board is committed to acting in the best interests of Southwest and its Shareholders and will provide further updates in due course. No immediate action is required of Shareholders.
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