Southwest Air adopts poison pill to counter activist Elliott

Southwest Airlines Co. has adopted a shareholder rights plan to defend against a push for a leadership overhaul and other changes by activist firm Elliott Investment Management.

Commonly known as a “poison pill,” the plan aims to dissuade what Southwest called “de facto or negative control” of the airline without compensating other shareholders, the airline said in a statement Wednesday. It comes after Elliott in June disclosed a $1.9 billion stake in the airline and demanded new leadership and a revamp of Southwest’s business to better compete with other airlines.

“The board determined that adopting the rights plan is prudent to fulfill its fiduciary duties to all shareholders,” Southwest Chairman Gary Kelly said in the statement.

Southwest said Elliott had built an economic interest equal to about 11% in the carrier, and had not reported its full position in securities filings.

Southwest will issue one “right” for each share of common stock under the plan, which runs for one year. When a shareholder or group of investors accumulates 12.5% or more of Southwest’s common stock, holders of those rights will be allowed to purchase additional Southwest shares at a 50% discount to the carrier’s then-current share price, according to the statement. 

Rights held by a person or group holding 12.5% or more of Southwest would become void, the carrier said.

Southwest shares were little changed before the start of normal trading on Wednesday. In the last year, shares have dropped 24%, compared to a 24% increase in the S&P 500.

Southwest faces mounting frustration from some investors over the company’s lagging financial performance and insular corporate culture. The carrier cut its second-quarter outlook for unit revenue as it contends with moderating demand for US domestic leisure travel after a major rebound after the pandemic.