The board of Southwest Airlines (WN, Dallas Love Field) has approved adopting a limited-duration shareholder rights plan in response to Elliott Investment Management L.P. acquiring a significant amount of its common stock.
The airline made the announcement via a July 3 regulatory filing and follows Elliott, a so-called activist investor, building a circa 11% stake in Southwest Airlines and calling for leadership changes in the wake of lacklustre financial results.
"Southwest Airlines has made a good faith effort to engage constructively with Elliott Investment Management since its initial investment and remains open to any ideas for lasting value creation," said Gary Kelly, Southwest's executive chairman. Under the rights plan, colloquially known as a poison pill, the airline will issue one right for each share of common stock.
The rights will initially trade with Southwest Airlines' common stock and become exercisable only if any person or group acquires 12.5% or more of the airline's outstanding common stock. If they become exercisable, the rights of the person or entity triggering it would become void, but all other rights holders would be entitled to acquire shares at a 50% discount to the then-current market price. Alternatively, the airline may elect to exchange each right held by those holders for one share of common stock.
Elliott has spent around USD1.9 billion building its Southwest stake, and the airline believes it will soon try to acquire more. The fund is known for forcing changes in the companies it invests in and has publicly criticised Southwest's management, including CEO Bob Jordan. “I have no plans to resign,” Jordan said last month. “Elliott can provide us [with] ideas. They can talk to other shareholders, but Elliott is not directing the company."
The rights plan takes effect immediately and will expire in 12 months. Any extension would require prior approval by the shareholders.
