Southwest Airlines adopts 'poison pill' to prevent hostile takeover by Elliott Investment

Southwest Airlines has implemented a shareholder rights plan, commonly known as a "poison pill," in response to activist investor Elliott Management's move to acquire a significant stake in the company and push for the removal of CEO Bob Jordan and Chairman Gary Kelly. The plan will only be activated if Elliott or another investor acquires at least 12.5% of the company, triggering a provision that allows all other shareholders to purchase new Southwest shares at a 50% discount. This move comes after Elliott disclosed a $1.9 billion stake in Southwest, representing about 11% of the company, and criticized the airline's underperformance compared to its competitors. Southwest's decision to adopt the poison pill is also influenced by Elliott's filings with antitrust authorities, indicating the potential for the activist investor to increase its stake further by next week. The provision aims to dilute Elliott's influence and voting power within the airline. Despite Elliott's push for leadership changes and criticism of Southwest's operational challenges, the airline's board has expressed confidence in CEO Bob Jordan and the management team's ability to drive long-term value for shareholders. Southwest's move to implement the shareholder rights plan is seen as a strategic measure to protect the company from hostile takeovers and ensure that negotiations are conducted through the board rather than directly with shareholders. The airline has faced financial losses and operational difficulties, including flight cancellations attributed to outdated software and operational processes. Southwest's decision to engage constructively with Elliott Investment Management reflects its commitment to exploring ideas for lasting value creation while safeguarding shareholder interests amidst the activist investor's attempts to exert control over the company. In response to Elliott's investment and demands for leadership changes, Southwest Airlines has taken proactive steps to defend its position and uphold its fiduciary duties to shareholders. The airline's adoption of the poison pill strategy underscores its commitment to maintaining stability and strategic direction in the face of external pressures, signaling a proactive approach to safeguarding shareholder value and resisting potential disruptions to its operations and governance structure.