According to Bloomberg, Elliott Investment Management and Southwest Airlines
have begun discussing a potential settlement that would “avoid a proxy fight for control of the airline’s board.” Elliott Investment has recently moved to try to replace the current CEO of Southwest and eight members of the current board. The

struggle between Elliot and the existing Southwest management
has been heating up in recent weeks.

Southwest may compromise on board appointments

The Bloomberg article cited “people family with the matter” as the source for their information. The publication stated, “Elliott has proposed a framework that would give it representation on Southwest’s board but not control, said some of the people, who asked to not be identified because the discussions aren’t public. The talks, which were progressing toward a resolution as of Saturday, haven’t been finalized and could fall through, the people said.

Southwest Airlines Boeing 737-800 landing shutterstock_2275559153

Photo: Austin Deppe | Shutterstock

Elliott and Southwest have been engaged in a proxy fight. Elliot has nominated eight directors to the Southwest board and called for a special shareholder meeting on December 10. This has set the stage for what could be “the firm’s first US proxy fight since 2017.” Southwest has said the special meeting is unnecessary and inappropriate.

Bloomberg states Southwest is making “every effort” to reach a resolution with Elliott, and the settlement framework could include pointing as many as three of Elliott’s nominees.

Related

Elliott’s Latest Shot At Southwest: What Precedent Do The Hedge Fund’s Actions Set?

The organization has taken an aggressive stance.

Elliott and its battles with Southwest

Elliott Investment is a hedge fund and is one of the largest activist funds in the world. It invests heavily in distressed securities and then uses its influence to enact change. Some claim that funds like Elliot are infamous for dismantling companies and profiting off short-term gains.

Southwest Airlines Boeing 737s at DAL shutterstock_2428818329

Photo: Markus Mainka | Shutterstock

Elliott has bought an 11% stake in Southwest and is trying to bring major changes to the major airline (it disclosed an initial Southwest stake of around $2 billion in June). While this is far from a controlling interest (51%), it is a significant share and enough to start having a large impact on shareholder voting.

Elliott sees Southwest as suffering from years of underperformance and believes this could change if Southwest changes strategy and has leadership changes.

“Elliott…believes that Southwest represents the most compelling airline turnaround opportunity in the last two decades. Our goal is to restore Southwest’s status as an industry-leading airline.” – Elliot Investment

The fund has also pointed the finger squarely at CEO Bob Jordan and Chairman Gary Kelly. Last month, Southwest unveiled a $2.5 billion stock buyback plan and detailed major policy changes in efforts to revitalize its operations and fend off Elliott.

A petition to “save Southwest” from Elliott
has gained hundreds of signatures fearing the fund will dismantle jobs and tarnish the carrier’s legacy.

Southwest Airlines Boeing 737-700 (N917WN) slowing down on runway 20R at John Wayne Airport.

Photo: Philip Pilosian | Shutterstock

Southwest is a peculiar hybrid carrier that only operates Boeing 737s (a lot of them). It

doesn’t fly to Canada (as its system is not set up for Canadian dollars)
and offers free checked baggage. However, it is now moving to offer more premium flying options, like upgrades offering extra legroom.

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