Elliott lands on Southwest's runway, seeking CEO exit
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A Southwest plane lands in New York, 2020. (Photo by TIMOTHY A. CLARY/AFP via Getty Images)
Activist investor Elliott Management is seeking major changes at Southwest Airlines, including a board shake-up and the ouster of its CEO.
Why it matters: Elliott says it has built a $1.9 billion, or 11% economic interest in the airline, and with a stake that big, the aggressive hedge fund has a track record of getting what it wants.
Zoom in: In a June 10 letter addressed to Southwest's board, Elliott said it's now one of the largest investors in the company. The fund has three main demands:
- First is new, independent board directors with hands-on airline experience.
- Second, Elliott says it wants a leadership "upgrade," which is another way of saying it wants CEO Bob Jordan fired and replaced with someone outside of the company.
- Elliott's third demand is for Southwest to conduct a business review to modernize its operations, improve IT systems, and form a strategic plan to turn around the company's performance.
Between the lines: Elliott, the largest and most aggressive activist investor in the world, is not calling for any major transaction or stock buybacks. The campaign is focused mainly on leadership and operations.
- Elliott added a scathing, 51-page presentation to its Monday morning news rollout, listing dozens of areas where Southwest is falling short.
- It called out the company for its infamous 2022 system "meltdown" and noted the stock had lost half its value during the last three years.
- Shares of Southwest jumped 10% on Monday after Elliott's stake was revealed.
The intrigue: Southwest just held its annual meeting in May, meaning Elliott is preparing for a very long campaign, with board director nominations not due until early in 2025. For a May annual meeting, activists usually wait until at least the fall to launch an attack.
- In addition, Southwest's slow response to the Elliott press release on Monday morning suggests the activist built its position quietly, and surprised the airline with its campaign. The company later confirmed in a statement that the first it heard from Elliott was Sunday.
- Southwest said in a statement late Monday that based on its ability to overcome strong headwinds in the past, the company "is confident in our CEO and Leadership Team's ability to fulfill our strategy to drive long-term value for all Shareholders..."
- The airline also said it is willing to engage with Elliott and that it is reviewing the fund's presentation.
What we're watching: Southwest can fight Elliott, and defend Jordan and the board, or engage with the activist and somehow find common ground.
- Engaging with an activist is common, but not when the fund is calling for the CEO's ouster.
- Any peace agreement Southwest seeks with Elliott will presumably have to come with a leadership transition plan.
Editor's note: This company was updated to include Southwest's statement.
