Southwest Airlines (LUV) is gearing up for a proxy fight with activist investor Elliott Investment Management. The investment firm plans to nominate 10 directors to Southwest’s 15-member board, aiming to reshape the company’s leadership and address recent underperformance.
Key Takeaways
- Proxy Fight: Elliott Investment Management is pushing for significant changes in Southwest’s leadership.
- Board Nominees: The firm has proposed 10 new directors, including former Virgin America CEO David Cush and ex-federal transportation regulator Sarah Feinberg.
- CEO and Chairman: Elliott is calling for the replacement of CEO Bob Jordan and the removal of Executive Chairman Gary Kelly.
- Special Meeting: Elliott plans to call a special meeting for a shareholder vote, leveraging its 11% stake in Southwest.
- Southwest’s Response: The airline has attempted to engage with Elliott but remains open to evaluating the proposed board nominees.
- Poison Pill: Southwest adopted a "poison pill" strategy to prevent any shareholder from accumulating more than a 12.5% stake.
- Analyst Opinions: Analysts have mixed feelings about Southwest’s stock, with some recommending a hold and others suggesting a sell.
Elliott’s Bold Move
Elliott Investment Management has announced its intention to nominate 10 directors to Southwest Airlines’ 15-member board. Among the proposed nominees are David Cush, former CEO of Virgin America, and Sarah Feinberg, a former federal transportation regulator. The firm is also advocating for the replacement of Southwest CEO Bob Jordan and the removal of Executive Chairman Gary Kelly.
Special Meeting and Shareholder Vote
To facilitate a shareholder vote on its proposed directors, Elliott plans to call a special meeting. The investment firm holds an 11% stake in Southwest, which allows it to schedule such a meeting according to the airline’s bylaws. Southwest’s bylaws require a stakeholder to own at least 10% of the company to call a special meeting.
Southwest’s Response
Southwest Airlines has responded to the proxy fight by stating that its board had attempted to engage constructively with Elliott. However, the activist investor dismissed those efforts. Despite this, Southwest remains open to discussions and will evaluate Elliott’s board nominees.
Poison Pill Strategy
In response to Elliott’s actions, Southwest adopted a "poison pill" strategy. This measure goes into effect if a shareholder accumulates a stake greater than 12.5%, aiming to prevent any single entity from gaining too much control.
Analyst Opinions
Analysts have mixed feelings about Southwest’s stock. According to S&P Global Market Intelligence, the consensus target price for LUV stock is $25.32, which is around its current trading price. The consensus recommendation is to hold the stock. However, financial services firm Jefferies has a more bearish outlook, rating the stock as underperform with a $20 price target.
Jefferies analyst Sheila Kahyaoglu expressed doubts about the proposed board members gaining support from the current shareholder base. She noted that investors are unlikely to vote out the current leadership without a clear go-forward plan, especially given Southwest’s recent actions to adapt and challenge Elliott’s characterization of the company as stagnant.
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