< Back
EIM News: Elliott readies proxy fight with Southwest Airlines, calls for 10 new directors

EIM News: Elliott readies proxy fight with Southwest Airlines, calls for 10 new directors

August 14, 2024

Dallas Morning News: Activist investor Elliott Investment Management is readying for a proxy fight over Southwest Airlines.

The hedge fund confirmed Tuesday that it plans to nominate 10 directors to Southwest’s 15-person board and call a special meeting allowing shareholders to vote on candidates.

“When nominated, these candidates would give shareholders a choice between the company’s existing board, which has delivered poor returns for shareholders and has not held management accountable for Southwest’s unacceptable performance, or a new board that brings relevant expertise, fresh thinking and accountability,” Elliott wrote in a release.

The announcement comes just after Elliott publicly disclosed last week a 7% beneficial ownership in Southwest, just below the threshold of 10% required to call a special meeting. Elliott, which disclosed a $1.9 billion stake in Southwest in June, had been aggressively buying common shares of Southwest, according to the public filing.

Under Southwest’s bylaws, special meetings of shareholders may be called by the chair of the board, president or the CEO and can be called on written request “stating the purpose or purposes” by the majority of the whole board of directors. A special meeting can also be called by one or more shareholders that collectively own 10% or more of all shares.

Elliott currently holds voting power over 48.9 million shares, roughly 8.2% of the company’s value, according to a regulatory filing Tuesday. However, Elliott would need to ask Southwest for the meeting and it could be a while until the meeting actually takes place.

In a response Wednesday, Southwest said it is “is laser-focused on restoring its industry-leading financial performance and on building a sustainable and profitable future for the airline and all of its shareholders.” The airline also criticized Elliott’s strategy.

“Since Elliott launched its campaign against Southwest Airlines, the board has consistently sought to engage constructively and in the best interests of all shareholders. Elliott has dismissed those efforts at every turn,” the carrier said in a a statement. “After Elliott recently agreed to a meeting with Southwest Airlines in early September to discuss a collaborative resolution, including continuing significant board refreshment and other governance enhancements, Elliott unilaterally decided instead to publicly announce its intention to replace a majority of Southwest Airlines’ board.”

“The Southwest Airlines board and executive leadership team remain open to conversations with Elliott to discuss ideas to drive shareholder value, and the board will evaluate Elliott’s proposed nominees as part of its ongoing board refreshment process. No immediate action is required of shareholders.”

In previous letters to Southwest’s board of directors, Elliott had three main requests of Southwest: Oust leaders like CEO Bob Jordan and executive chairman Gary Kelly, reevaluate Southwest’s board of directors and conduct a business review.

In June, Elliott disclosed its total 11% economic interest in the company, made up of common stock and derivatives. Despite this, Elliott has said it has no intentions of taking over.

“Contrary to the company’s statements, Elliott is not seeking control of Southwest,” Elliott wrote in a July 8 letter to the board. “Quite simply, we are seeking to strengthen oversight, upgrade management and improve company performance.”

Elliott’s stake in Southwest is not a controlling stake, but it is a substantial one that triggered Southwest to adopt a “poison pill” plan. The “poison pill” is a move often used to thwart activist investors.

Under Southwest’s “poison pill” plan, if Elliott purchased 12.5% or more of Southwest’s shares, current shareholders gain the option to buy additional shares at a lower price, diluting Elliott’s holdings, decreasing their value and making it more difficult for them to take over.

Southwest, which did not respond to a request for comment, has an investor day scheduled for late September. More information is expected on its new seating policies announced on its latest quarterly earnings call. The assigned seats are a step closer to changing the airline’s roots and an opportunity for Southwest to perform better financially.

Elliott listed its potential candidates on Tuesday:

  • Michael Cawley, former deputy CEO, chief operating officer and chief financial officer of Ryanair
  • David Cush, former CEO of Virgin America
  • Sarah Feinberg, former senior official at the Department of Transportation and former head of the Federal Railroad Administration
  • Josh Gotbaum, longtime advisor to companies and labor groups and former chapter 11 trustee of Hawaiian Airlines
  • Dave Grissen, former group president of Marriott International
  • Nancy Killefer, former McKinsey senior partner in consumer and retailing practice and current board member of Meta
  • Robert Milton, former CEO of Air Canada and ACE Aviation Holdings and former chairman of United Airlines
  • Gregg Saretsky, former CEO of WestJet
  • Eash Sundaram, former chief digital and technology officer of JetBlue
  • Patty Watson, executive vice president and chief information & technology officer at NCR Atleos


Read the story on dallasnews.com.