Southwest Airlines’ battle with top investor Elliott Investment Management (Elliott) continued this week as the latter threatened to replace the former’s board of directors with 10 selections of its own to help restore “its industry-leading position.”
Earlier this week, Elliott shared its list of 10 “independent, highly qualified candidates” that it would see added to Southwest’s board of directors. This move comes after Elliott called for the firing of Southwest CEO Robert Jordan and the replacement of Chairman Gary Kelly, who Elliot blames, according to The Associated Press, for Southwest’s poor financial performance.
“The urgency of change is underscored by the substantial continued deterioration in Southwest's performance since Elliott initially published its materials on June 10 and the Board's actions in response to further entrench itself and resist change,” Elliott said in a statement.
In early July, Southwest’s board approved the adoption of a limited-duration shareholder rights plan following an announcement from Elliott Investment Management that it had built an approximately 11 percent stake in Southwest. This means that should any person or group buy 12.5 percent or more of Southwest Airlines' stock, all other shareholders would be able to buy more shares at a 50 percent discount (or Southwest could give each shareholder one additional common stock). This makes it much more expensive for the triggering investor to gain control of the company.
Soon after, the airline announced plans to assign seats, offer premium seating options, redesign the boarding model and introduce red-eye flying. These are the first such changes for the carrier in over 50 years.
In a statement this week, Southwest said, “Since Elliott launched its campaign against Southwest Airlines, the board has consistently sought to engage constructively and in the best interests of all Shareholders. Elliott has dismissed those efforts at every turn. After Elliott recently agreed to a meeting with Southwest Airlines in early September to discuss a collaborative resolution, including continuing significant board refreshment and other governance enhancements, Elliott unilaterally decided instead to publicly announce its intention to replace a majority of Southwest Airlines' board.”
Separately, Elliott was recently behind the ousting of Starbucks CEO and board member Laxman Narasimhan, replacing him with Brian Niccol, who comes over from Chipotle. “Since becoming CEO in 2018, Niccol has transformed Chipotle. His focus on people and culture, brand, menu innovation, operational excellence, and digital transformation have set new standards in the industry and driven significant growth and value creation,” Starbucks said in an announcement.
“Elliott has been engaged with Starbucks' board over the past two months regarding our perspectives on the company's key issues, and we view today's announcement as a transformational step forward for the company,” Elliott added.
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