The battle between Southwest Airlines and its aggressive suitor and shareholder Elliott Investment Management (Elliott), has moved to a new level just days before scheduled peace talks. Today, it emerged that Elliot has passed the strategically important 10% share ownership threshold, putting more pressure on the airline to give some ground or face a special meeting of all shareholders.
What does it mean?
According to Reuters, Elliott now holds 10% of Southwest Airlines (Southwest) common stock and has crossed the threshold to call a special meeting of the airline’s shareholders. Although its economic stake is unchanged, Elliot had taken an 11% economic stake through derivatives and converted enough of those holdings into common stock to pass the 10% threshold.
Photo: Markus Mainka | Shutterstock
The battle has become increasingly acrimonious, only exacerbated by Elliott’s insistence that Southwest Airlines CEO Robert Jordan and Executive Chairman Gary Kelly must be replaced. Throwing further pressure on Southwest management, Elliott has publicly revealed its plans to nominate ten directors to the board of 15, giving it a strong majority voice on the airline’s future.
Today’s news comes a week before Southwest and Elliott are due to meet on September 9. The meeting aims to find common ground and address the issues that have caused Southwest shares to lose around 50% of their value over the last three years.
Photo: The Global Guy | Shutterstock
Reuters reported that Southwest had lost 50% of its value in the three years to June 7, 2024, when it closed at $27.75. That was just before Elliott’s investment became known on June 10, which bumped the shares to a close of $28.92 last Friday. According to Elliott’s research, Southwest’s value has fallen from $41 billion in 2017 to $17 billion, which is fertile ground for the hedge fund’s move on the airline.
Heavyweights in the ring
Elliott is not a small-time outfit making vacuous threats to Southwest but is one of the world’s most powerful activist investors with more than $70 billion in assets under management. Over the last few months, the pair have increasingly retreated into their own corners, and their public statements leave little room for any meaningful collaborative outcome to emerge from next week’s meeting.
Photo: Robin Guess | Shutterstock
In a nutshell, Jordan has clearly made it known he will not resign from the post he has held since 2022 and that he and the leadership team are prepared to take the fight to Elliott. Elliott has equally made it very clear to other Southwest shareholders, and the public that it is not backing down and will take the necessary steps, including calling the special meeting, to remove the airline’s leadership.
While dismissive of Elliott’s approach, Southwest has sensed the danger and outlined plans to lift financial performance and drive shareholder value. The most visible statement was ditching the legendary free-for-all seating policy for assigned seats, adding more premium seats with more legroom and changing flight schedules.
It is too early to say how effective those changes will be, but Elliott quickly dismissed them as too little too late, reinforcing the view that wholesale boardroom change is the only thing that will suffice. Calling a special meeting will seriously escalate the battle, but unless Southwest finds a way to work with the investor at the level Elliott wants, it is hard to see that not being the next outcome.