Activist hedge fund Elliott Investment Management has stepped up its calls for management changes at Southwest Airlines in a letter to shareholders.
Elliott, led by billionaire investor Paul Singer, has earned a reputation for its sometimes aggressive approach to turning around struggling companies.
The company recently played a key role in the ousting of Starbucks CEO Lakshman Narasimhan and the appointment of former Chipotle president Brian Niccol, who has led the chain’s stock price soaring.
The airline is now looking to oust Southwest CEO Bob Jordan and Chairman Gary Kelly, whom it blames for the airline’s downfall.
The company warned that it would be forced to launch a proxy fight if the airline’s executives could not identify “what is best for Southwest and its shareholders.” According to a copy of the letter seen by Reuters:.
“Southwest has made multiple offers to negotiate with Mr. Elliott and remains prepared to meet on September 9th,” a Southwest spokesman told The Post in a statement.
“Southwest welcomes feedback, and over the past several months our board of directors and management have met with many shareholders to hear their input directly.”
The hedge fund said it hopes to meet with Southwest executives at a meeting on Sept. 9 to begin tackling what it called the “mega” challenge.
Southwest Airlines shares are down about 1% so far this year and were trading at $28.17 on Monday.
Elliott proposed setting up a committee to review the company and “drive change.”
The activist investor has said he wants 10 of the 15 board members replaced with aviation industry experts.
The company’s board nominees include some of the biggest names in the transportation and aviation industries, including former Ryanair executive Michael Corey, former Virgin Air CEO David Kush, former Air Canada CEO Robert Milton and former JetBlue executive vice president Eash Sundaram.
Elliott has previously criticized Southwest for a lack of airline industry veterans among its management team and said he plans to call a shareholders meeting to vote on director nominees.
Elliott said in a regulatory filing earlier this month that its beneficial ownership was 7%, close to the 10% stake needed for investors to call a special meeting. The company owns about 11% of the stock, including derivatives.
Southwest responded to Elliott’s investment by implementing a shareholder rights plan, or poison pill, that would be triggered after an investor acquired more than 12.5% of the stock and allow other shareholders to buy more shares at a discount to prevent a takeover.
Meanwhile, Jordan said on an earnings call last month that Elliott had not shown an openness to meaningful discussions. He said the airline was taking steps to transform.
Southwest appointed a new director in July, shortly after Elliott’s criticism, bringing in Rakesh Gangwal, a decades-long veteran of the airline industry.
He is a co-founder of IndiGo, India’s largest airline by aircraft size and passenger numbers, according to Southwest.
Southwest also announced it would add new tiered seating options with more legroom, breaking with a decades-old practice of not allowing passengers to select their seats in advance.
In his letter, Elliott said Southwest needs to do more to improve, saying “a hand-picked new director tied to current management and a few long-overdue initiatives are not enough.”
Despite these changes, Elliott still seems intent on getting rid of Jordan and Kelly.
In its letter, the company said it does not seek to “control” the company with its director nominees, but believes the board is “established to serve the interests of the current CEO and chairman.”
The hedge fund argued that Southwest should not exist as an “absolute monarchy,” but as a publicly traded company, it should prioritize shareholders.
Elliott said investors, including Artisan Partners, which had asked Southwest to cooperate with the hedge fund’s proposal, supported the activists’ plan for reform.
Other Southwest investors have privately voiced support for Elliott’s stance, the people said.
Elliott said Southwest pilots have called for company reforms in the past.
Meanwhile, Jordan has been meeting with investors to rally support against Elliott’s expansion.
“Don’t be fooled: This is a battle for the heart and future of our company — and your future,” Jordan said in a memo to employees last week.
But Elliott argued in his letter that the fight was about Jordan and Kelly “retaining control of Southwest Airlines on their terms and for as long as they wish.”
With post wire
