Elliott Investment Management, a well-known hedge fund, has purchased 10% of Southwest Airlines’ common stock, putting the firm in position to call a special shareholder meeting, according to sources familiar with the situation.
This development comes just days before the two parties’ scheduled meeting on September 9, where they will discuss strategies for addressing the issues that have caused Southwest’s stock to lose nearly half its value over the last three years.
Elliott, known for its activist investment strategies and $70 billion in assets, has been vocal about the need for significant leadership changes at Southwest. The hedge fund has called for the removal of CEO Robert Jordan and Executive Chairman Gary Kelly, as well as the nomination of ten directors to the airline’s 15-member board. The firm initially held an 11% economic stake in Southwest through derivatives, but recently converted enough of those holdings into common shares to exceed the 10% mark, though its overall economic stake has remained unchanged.
Southwest Airlines has not yet commented on the situation. However, CEO Robert Jordan, who took over the role in 2022, has stated that he does not intend to resign and has informed employees that he and other executives are prepared to challenge Elliott’s actions.
The possibility of a special meeting marks a significant step forward in Elliott’s ongoing dispute with Southwest Airlines. Special meetings are uncommon and are typically held to address pressing issues that cannot wait until the next annual shareholder meeting. Elliott has stated that it may convene such a meeting if the airline does not engage in discussions about leadership changes.
In response to Elliott’s growing influence, Southwest has taken defensive measures, including a shareholder rights plan that prohibits any single investor from owning more than 12.5% of the company’s stock. The airline has also attempted to improve its image and stock price by implementing measures such as adding seats with more legroom, transitioning to assigned seating, and appointing a new board member in July.
Despite these initiatives, Elliott has called the improvements “too little, too late.” The airline’s stock price has dropped by 50% in the last three years, with a market value of $17 billion as of June 2023, down from $41 billion in 2017. The hedge fund has a track record of pushing for executive changes, as seen with NRG Energy, where Elliott successfully advocated for leadership changes that resulted in a significant increase in the company’s stock value.
With input from Reuters.
