Elliott Investment Management Threatens Proxy Fight at Southwest Airlines

Elliott Investment Management has issued a stark warning to Southwest Airlines (LUV.N), indicating its readiness to launch a proxy fight aimed at reshaping the carrier’s leadership.

In a strongly-worded letter addressed to Southwest’s board on Monday, Elliott declared its intention to initiate a proxy battle, emphasizing the urgency of implementing leadership changes to enhance shareholder value.

Known for its proactive stance in driving corporate reforms to bolster investor returns, Elliott outlined specific demands, including a complete overhaul of Southwest’s board composition. The firm insisted on appointing new directors who possess robust expertise in airlines, customer experience, and technology, stressing the need for truly independent voices.

Citing Southwest’s recent financial performance as disappointing, Elliott underscored the necessity for fresh leadership to revitalize the airline’s competitive standing in the industry.

Responding to Elliott’s stance, Southwest expressed openness to constructive dialogue, reaffirming its commitment to evaluating additional qualified director candidates who are independent and capable. However, the airline criticized Elliott for what it described as personal attacks on its current leadership and board members, cautioning that any substantive discussions hinge on Elliott withdrawing its demand for an immediate CEO change.

Elliott, which currently holds an 11% stake in Southwest, positioned itself as one of the airline’s largest investors. Last week, Southwest disclosed Elliott’s filings with antitrust regulators aimed at potentially increasing its voting influence by July 11. In response, Southwest implemented a defensive “poison pill” strategy, a common tactic to deter hostile takeover attempts.

Despite Southwest’s defensive measures, Elliott clarified that its objective isn’t to take control of the airline but rather to ensure that shareholder interests prevail. Criticizing the adoption of the poison pill as prioritizing the board’s self-interest over company welfare, Elliott lambasted Southwest’s recent board appointment of aviation veteran Rakesh Gangwal. The firm argued that Gangwal’s inclusion is indicative of the board’s attempts to entrench existing leadership rather than address shareholder concerns.

Rakesh Gangwal, a co-founder of InterGlobe Aviation (INGL.NS) and with extensive board experience in the aviation and retail sectors, was defended by Southwest’s executive chairman, Gary Kelly. Kelly highlighted Gangwal’s expertise in travel technology as crucial for supporting the airline’s operational and strategic endeavors.

Elliott’s critique concluded by asserting that Southwest’s board has become disconnected from shareholder sentiments and the current business realities. The firm urged swift action to rectify the situation, emphasizing that meaningful changes in leadership are imperative to steer Southwest Airlines back on course.

As the standoff intensifies, both Elliott and Southwest are poised for a potential showdown over the airline’s future governance and strategic direction.