Southwest adopts poison pill
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Southwest Airlines said it has adopted a shareholder rights plan in an effort to prevent Elliott Management from building a bigger stake in the company.
Why it matters: The move signals the company is fixing for a fight.
Zoom in: Southwest's rights plan triggers when a shareholder's stake exceeds 12.5%. At that point, shareholders below that threshold are able to acquire shares at a 50% discount.
- The point of these "poison pills" is that once triggered, the share price falls and the shareholder base becomes more diluted — punishing the agitator.
- In Elliott's case, the activist hedge fund already has an 11% economic interest, meaning at any point in the next few months, it could fully own that same amount and more in Southwest common stock.
Catch up quick: Elliott launched a full offensive against the company last month, calling for the ouster of CEO Bob Jordan and chairman Gary Kelly, and a board shakeup.
The intrigue: Southwest's bylaws allow a shareholder or group of shareholders owning 10% of common stock to call a special meeting. That means Elliott, on its own, could pursue that option if it chooses. Southwest's next annual shareholders meeting isn't expected until May of 2025.
What we're watching: The rights plan, while deemed prudent by board advisers, lawyers, corporate governance pros and the like, will no doubt inflame Elliott and prompt some kind of escalation on its already aggressive campaign.
Elliott has not responded to a request for comment.
