Southwest Airlines Co. (LUV) issued a statement on Wednesday 3 July 2024, saying that it has adopted a shareholder rights strategy, or ‘poison pill’ approach, to fend off an increasing stake by Elliott Investment Management. The hedge fund sponsor reportedly also wants to eject the airline’s current CEO and chairman.
In June 2024, Elliott indicated that it owns roughly 11% of Southwest Airlines. Based on CNBC information, Elliott criticised the airline’s performance compared to those of others. The poison pill will only come into effect if an investor, such as Elliott, attains a 12.5% stake. This strategy will allow all other shareholders to buy one share for every share they currently own at a 50% discount.
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Following this announcement, the airline’s stock went up 1% during Wednesday trading. The poison pill decision was reportedly fuelled in part by Elliott’s filings with antitrust bodies, which would enable it to acquire a larger stake in the airline. It seems that Elliott made the filing at the same time that it announced its stake. Southwest’s chairman, Gary Kelly, commented:
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.
Analysts explained that a poison pill is a known strategy that companies deploy when facing hostile takeovers and activist threats. Southwest Airlines seemingly stands behind this executive decision and Bob Jordan, the firm’s CEO, said that he had no intention of resigning.