Activist investor Elliott Investment Management warned Monday of a possible proxy fight to force changes in management at low-cost carrier Southwest Airlines.
in Letter to Southwest’s Board of DirectorsElliott said it was open to cooperation but planned to “move expeditiously to engage shareholders directly to provide input on any necessary management changes.”
Elliott, known for pushing for reforms to increase shareholder returns, is calling for a restructuring of Southwest’s board with “new, truly independent” directors with expertise in airlines, customer experience and technology.
The activist investor is also calling for a management change at Southwest, citing disappointing financial performance.
Southwest said in a statement that it remains open to constructive discussions with Elliott, including evaluating additional “highly qualified and independent” director candidates, but added that the investment firm has focused on personal attacks against the company’s management and board, and that any serious discussions are contingent on an immediate CEO replacement.
In his letter, Elliott called the airline’s performance “unacceptable” and said a change in management was needed to restore its former industry-leading position.
“Shareholders have no confidence in the ability of this board and management to develop and execute a bold new plan to turn Southwest around,” the company said.
Elliott currently owns 11% of the company, making it one of its largest investors.
Southwest Airlines said last week that an activist investor had filed paperwork with antitrust authorities that could give the airline more voting power as soon as July 11. In response, the airline blocked Elliott from raising its stake by implementing a “poison pill” — a system used by boards of directors to thwart hostile takeovers.
Elliott said he was not seeking control of Southwest, but added that the airline’s board was “putting its own interests above those of the company” by implementing the “poison pill.”
He also criticized the appointment of aviation industry veteran Rakesh Gangwal to Southwest’s board of directors, calling it an attempt by the board to “entrench the position of the company and its current management.”
“These actions demonstrate how out of touch Southwest’s board is with shareholder sentiment and the realities of the current situation,” Elliott said in the letter.
Gangwal, co-founder of InterGlobe Aviation, which operates India’s largest airline, IndiGo, also sits on the boards of US Airways Group Inc, CarMax Inc and Office Depot Inc.
“Rakesh’s travel technology expertise will be valuable as we continue to make investments in support of our business and strategic initiatives,” said Gary Kelly, chairman of Southwest’s board of directors.
