Southwest Airlines Invokes ‘Poison Pill’ Stock Plan to Prevent Activist Investor From Taking Larger Stake in Carrier

Southwest Airlines has invoked a so-called “poison pill” stock plan to try to prevent an activist investor who wants to oust the carrier’s management team from taking a larger stake in the airline.

On Tuesday, Southwest announced that its board of directors had approved a limited-term shareholder rights plan that will take effect if an investor acquires an additional 12.5% ​​stake in the airline.

The rights plan does not affect shareholders who already own the triggering percentage of shares, but will impact U.S.-based hedge fund and activist investment firm Elliott Investment Management, which recently acquired an 11% stake in Southwest.

Elliott wants to oust Southwest CEO Bob Jordan and other top executives and rewrite the airline’s strategy with the goal of achieving a 77% return on investment.

As an activist investor, Elliott’s strategy is to invest in companies with the very goal of bringing about major changes – either in management or in the company’s strategy – in order to improve the stock price.

A shareholder rights plan is a defensive strategy employed by listed companies to prevent a potential hostile takeover by giving other shareholders the right to purchase additional shares at a discounted price. The rights plan will initially last for 12 months but can be extended.

If this rights plan is activated, it is designed to dilute Elliott’s stake in the airline, making it more expensive to take a majority stake in the airline.

“Given Elliott’s potential to significantly increase its position in Southwest Airlines, the Board determined that adoption of the Rights Plan was prudent to fulfill its fiduciary duties to all stockholders,” said former CEO and Executive Chairman Gary Kelly.

“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 sustainable value creation,” Kelly continued.

Last month, Jordan said he would not resign in the face of pressure from Elliott and lambasted the company for demanding changes without providing specific ideas.

Jordan is already revamping Southwest’s strategy to make it more competitive with its rivals. A full announcement, however, is not expected until September, when Southwest holds an investor day.

On Tuesday, Kelly backed his successor, saying he was “confident” that Southwest had “the right strategy, the right plan and the right team in place to succeed.”

Subscribe to our newsletter

No spam, just a weekly digest of the best aviation news you can’t miss.