Elliott's Southwest attack options include early shareholder vote
Add Axios as your preferred source to
see more of our stories on Google.
Southwest Chairman Gary Kelly in 2016. Photographer: Daniel Acker/Bloomberg via Getty Images
Activist investor Elliott Management has several levers it can pull in its quest to oust Southwest Airline executives and directors, including the option to call a special shareholder meeting.
Why it matters: Elliott is known for being the most aggressive of all activists, and Southwest's bylaws grant the investor one more weapon in its already heavy arsenal.
Catch up quick: Elliott launched its campaign on June 10, seeking a leadership "upgrade" among its demands.
- Within the text of its letter and 51-page presentation, Elliott shows its specifically targeting the removal of CEO Bob Jordan and chairman Gary Kelly. The fund also identifies several long-tenured directors.
- Southwest has stated support of its leadership team.
Zoom in: Activists that seek a board shake-up usually have to wait until the company's annual shareholder meeting. Southwest's next annual meeting is expected in May 2025.
Yes, but: Southwest's bylaws allow what's known as a Special Meeting, or an early shareholder vote that an investor, or group of investors, can demand for any range of reasons.
- Companies usually adopt special meeting bylaws to display a shareholder friendly approach, knowing they rarely are put into place.
- In Southwest's case, an investor or investor group that owns 10% of common stock can call a meeting.
By the numbers: Elliott said it has invested $1.9 billion into the company, giving it a roughly 11% economic interest, though it has not detailed how much of that is in derivatives and how much is common stock.
- "I'd find it hard to believe that Elliott is not going to use that right, at the very least, for leverage," said Keith Gottfried, an activist defense attorney and CEO of Gottfried Shareholder Advisory.
The big picture: Pursuing a special meeting typically requires months of extra work for the investor calling for one and a higher threshold required to win.
- To win an annual meeting election, directors usually just need to earn more votes than the next nominee. At a special meeting, a nominee usually needs to win a majority of the outstanding shares to get elected.
- Over the last 10 years, shareholders launched 22 special meetings at companies in the Russell 3000 index, according to FactSet. Last year, Voce Capital pursued a special meeting at Cutera, a maker of dermatology products, a process it ended up terminating.
- For an activist like Elliott seeking leadership change, a special meeting allows the fund to act sooner and to target specific directors for removal and addition to the board.
What we're watching: According to the company's latest proxy, directors with the longest tenure are:
- David Biegler, 77, a director since 2006; Veronica Biggins, 77, a director since 2011; Douglas Brooks, 71, has served since 2010, and lead independent director William Cunningham is 80-years-old and has served on the board for the last 24 years.
- Elliott identifies Biegler, Biggins, Cunningham, and Kelly as key board members with long tenures in its "Board Change Is Needed" slide.
What's next: Gottfried, the activist defense attorney, said while a special meeting is an option, the two sides will most likely try to reach some kind of cooperation agreement, where directors are added and removed and Elliott de-escalates the campaign.
- He estimates that such a deal could involve at least five directors.
