The U.S. hedge fund Elliott Investment Management LP has reportedly acquired a 10% stake in Southwest Airlines Co.'s common stock, allowing it to hold a special meeting with shareholders of the carrier and potentially marking an escalation in their corporate dispute.
Sources say, the activist investor was able to convert enough of his 11% spin-off economic interest in the airline into common stock to cross the critical 10% threshold. His overall economic interest was retained.
Elliott's regulatory filing read that it owns more than 61 million shares, at least 10% of Texas-based Southwest, . Under Southwest’s bylaws, that gives Elliott the power to call a meeting at which shareholders could vote on board candidates.
The news comes ahead of a September 9 meeting between the two companies, where discussions are expected to focus on issues that have influenced Southwest's stock over the past three years.
In June, New York-based Elliott announced a $2 billion stake in the airline, which it called for a commercial valuation. The investment manager, which manages $70 billion in assets, also estimated the carrier's stock could reach $49.
Southwest can't deny the shake-up, the development is real, and increasing pressure on Southwest Airlines to change the leadership or attend a special meeting with shareholders.
The strained relation between the two sides, became worse, with the hedge fund's call for the resignations of Southwest CEO Robert Jordan and board chairman Gary Kelly.
Jordan said he's not leaving the job soon as he was appointed to in February 2022. He indicated that he and other executives are prepared to take on the activist investor.
In August, the company also announced plans to nominate ten candidates to the carrier's board of directors, which currently has 15 members.
Southwest’s stock price has dropped significantly, from $41 billion in 2017 to $17 billion now, according to Elliott’s research.
Extraordinary meetings are only held to deal with important matters outside the annual general meeting (AGM). If Elliott were to hold one, it would only significantly escalate the ongoing dispute.
The investment management company has already indicated that it is prepared to take necessary measures, such as an extraordinary meeting, if the airline remains determined not to discuss a change of management.
Southwest Airlines has also been proactive in defending itself against Elliott’s maneuvers. In July, the airline activated a “poison pill” strategy to counter Elliott’s growing influence.
“Poison pill” : Aimed at help protect Southwest Chief Executive Officer Bob Jordan and chairman Gary Kelly, whom Elliott is trying to remove, the plan would be triggered if any group acquires at least a 12.5% stake in the company. If that happens, all other Southwest shareholders would have the opportunity to buy additional shares equal to their current stake at a 50% discount.
Reported by Reuters, Southwest has implemented a shareholder rights plan to limit any investor from acquiring more than 12.5% of the company.
The airline has also announced plans to improve customer experience by adding more legroom, moving to assigned seating, and appointing a new board member.
Elliott has proposed a slate of 10 candidates, including former CEOs of other airlines, for Southwest’s 15-member board.
“We remain prepared to meet with Elliott next week and look forward to sharing details on our continued transformation at our Investor Day on Sept. 26,” a Southwest spokesperson said in a statement.
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