Southwest Airlines (WN, Dallas Love Field) is preparing for battle with activist fund Elliott Investment Management, and chief executive Bob Jordan has been rallying support from investors and employees, Reuters reported.
Jordan told its staff in a memo seen by the news agency that the upcoming fight against Elliott would be for the “heart of our company and our future - your future.”
Elliott said in June that it had spent around USD1.9 billion building its Southwest stake of around 11% and aimed to acquire more shares in the LCC, and it has been vocal about making extensive changes within the carrier including changing the leadership and replacing two-thirds of the board’s 15 directors.
According to Elliott, these changes are the way forward for the carrier to compete more effectively in today’s airline industry and drive Southwest’s stock price to USD49 within the next year, up 86% from current levels. The LCC represents “the most compelling airline turnaround opportunity in the last two decades,” it declared.
Southwest has said it remains open to conversations with Elliott but that the hedge fund has dismissed those efforts at every turn. During a second-quarter investors call, Jordan said Elliott had “not shown any willingness to engage in any meaningful conversation with us.” The board says it is confident in Jordan and the management’s ability to execute the strategic plan to “drive long-term value for all shareholders.”
“If it’s a fight they want, it’s a fight they will get,” Reuters quoted Jordan as writing to employees. He has met with investors over the last two weeks as Southwest prepares for the possibility that Elliott calls a special shareholder meeting to expel the C-level team.
ch-aviation has reached out to Southwest Airlines for comment.
This year, Southwest introduced new changes to the company, ending some longstanding practices, such as open seating and no red-eye flights. However, Elliott believes these measures are “too little, too late.”
The hedge fund is known for forcing changes in the companies it invests in, such as pushing out chief executives at Starbucks, Crown Castle, NRG Energy, and Goodyear Tire & Rubber Company in the past. However, it does not have a track record in the airline industry.