Southwest Airlines adopts ‘poison pill’ to fend off activist Elliott Management

Southwest
Airlines
said
Wednesday
that
it
has
adopted
a
shareholder
rights
plan,
more
commonly
known
as
a
“poison
pill,”
in
response
to
activist

Elliott
Management’s
investment
in
the
airline
and
push
to
oust
CEO
Bob
Jordan
and
Chairman
Gary
Kelly.

The
poison
pill
will
only
activate
if
Elliott
—
or
another
investor
—
acquires
at
least
12.5%
of
the
company.
If
that
threshold
is
crossed,
all
other
shareholders
will
be
entitled
to
purchase
one
new
Southwest
share
for
every
share
they
currently
own
at
a
50%
discount.

Southwest
shares
added
1%
on
Wednesday
after
Southwest’s
announcement.
Other
major
U.S.
airlines
also
rose.

Elliott
disclosed
in
June
that
it
had
amassed
a
$1.9
billion
stake,
or
about
11%
of
Southwest.
The
firm
called
out
Southwest’s
underperformance
relative
to
some
of
its
larger
airline
rivals
that
offer
more
products
like
premium
seating.

Southwest
said
the
poison
pill
was
adopted
in
part
because
Elliott
had
made
filings
with
antitrust
authorities,
known
as
HSR
filings,
that
would
allow
the
activist
to
acquire
an
even
larger
stake
by
next
week.
There
is
a
30-day
waiting
period
after
making
an
HSR
filing,
suggesting
that
Elliott
began
that
process
around
the
same
time
that
it
disclosed
its
stake
in
June.

“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
said
in
a
statement.
Elliott
and
Southwest
management
met
in
person
just
two
weeks
ago,
according
to
people
familiar
with
the
matter.

Such
a
provision
would
dilute
Elliott’s
influence
and
power
over
voting.
Companies
often
adopt
shareholder
rights
plans
in
response
to
an
activist
threat;
rental
car
company


Hertz
adopted
a

poison
pill
in
2013
in
response
to
“unusual”
trading
activity
that
management
thought
presaged
an
activist.

Southwest’s
board
backed
the
company’s
leadership
after
Elliott
disclosed
its
stake.
Jordan
said
last
month
he
has

no
plans
to
resign.

The
Dallas-based
airline
has
struggled
with
issues
including
an
oversupplied
domestic
market,
where
its
network
is
focused,
and
lengthy
delays
of
new
planes
from


Boeing.

Southwest
had
been
under
pressure
even
before
Elliott’s
investment
to
ramp
up
revenue
and
has
said
it
is
studying

massive
changes
to
its
longstanding
business
model
by
potentially
adding
seating
assignments
and
even
premium
seating.
The
airline
had
been
wildly
successful
throughout
much
of
its
history,
pulling
in
profits
for
most
of
its
more
than
five
decades
of
flying,
an
outlier
in
the
boom-and-bust
industry.

Elliott
has
mounted
campaigns
at
other
companies
such
as


AT&T,


Salesforce
and


Texas
Instruments.

Elliott’s
activist
practice
has
helped
it
become
one
of
the
most
successful
hedge
funds
in
the
world,
surpassing
$65
billion
in
assets.
The
firm,
which
moved
its
headquarters
in
2020
from
New
York
to
West
Palm
Beach,
Florida,
has
only
had
two
losing
years
in
five
decades.

Bank
of
America
and
Morgan
Stanley
serve
as
Southwest’s
bankers.
Vinson
&
Elkins
and
Kirkland
&
Ellis,
two
law
firms
with
well-regarded
activism
defense
practices,
are
Southwest’s
lawyers.

Elliott
did
not
immediately
respond
to
a
request
for
comment.