Activist hedge fund Elliott Investment Management doubled down on its calls to turn over Southwest Airlines leadership in a letter to shareholders.
Elliott, headed by billionaire investor Paul Singer, has gained a reputation for turning around downtrodden companies with a sometimes aggressive approach.
Most recently, the firm was integral in pushing out Starbucks CEO Laxman Narasimhan and appointing Brian Niccol, the former Chipotle boss who led the chain’s shares skyward.
Now the firm has set its eyes on ousting Southwest CEO Bob Jordan and Executive Chairman Gary Kelly, both of whom it blamed for the company’s downfall.
The firm threatened that if the airline’s leaders could not identify “what is best for Southwest” and its shareholders, then it would have to move forward with a proxy fight, according to a copy of the letter seen by Reuters.
“Southwest has made multiple overtures to engage with Elliott, and we remain prepared to meet on Sept. 9,” a Southwest spokesperson told The Post in a statement.
“Southwest invites feedback and during the past several months, our Board and Leadership have met with many of our Shareholders to hear from them directly.”
The hedge fund said it was eager to meet with Southwest leadership during the Sept. 9 meeting to start tackling what it called “immense” challenges.
Southwest shares are down about 1% so far this year, trading at $28.17 on Monday.
Elliott proposed the creation of a committee to conduct a review of the company and “drive transformational change.”
The activist investor has said it wants to replace 10 of the board’s 15 members with airline industry experts.
The firm’s board nominees include transportation and airline bigwigs like Michael Cawley, a former Ryanair executive; David Cush, Virgin Air’s former CEO; Robert Milton, Air Canada’s former CEO; and Eash Sundaram, JetBlue’s former executive vice president.
Elliott previously said it planned to call a shareholder meeting to vote on the board nominees, criticizing Southwest’s leadership for lacking airline industry vets.
Earlier this month, Elliott said in a regulatory filing that it had a 7% beneficial ownership, putting it close to the 10% stake required for an investor to call a special meeting. The firm has a roughly 11% interest including derivatives.
Southwest reacted to Elliott’s investment by adopting a shareholder rights plan, or poison pill, that would kick in after an investor acquires 12.5% or more of the stock and allow other shareholders to buy more stock at a discount to try to prevent a takeover.
Meanwhile, Jordan said during an earnings call last month that Elliott had not shown willingness to engage in any meaningful conversations. He said the airline was taking steps to transform itself.
Southwest appointed a new board member in July, shortly after Elliott’s criticism. Rakesh Gangwal joined the board with decades of experience in the airline industry.
He co-founded IndiGo, India’s largest airline by fleet size and passengers, according to Southwest.
And Southwest announced it was breaking from its decades-old tradition of not allowing passengers to pick their seats ahead of time, as well as adding new tiered seating options with extra legroom.
In the letter, Elliott said Southwest needs more fixes – “not just some hand-picked new directors beholden to current management and a few long-overdue initiatives.”
Despite the changes, Elliott seemingly remains keen on pushing out Jordan and Kelly.
In the letter, the firm said it does not want to be “in charge” of the company with its board nominees, but it feels the board is “purpose-built to serve the interests” of the current CEO and chairman.
Southwest must prioritize its shareholders as a publicly traded company, not exist as “an absolute monarchy,” the hedge fund said.
Elliott said investors agree with the activist’s plans for change, like Artisan Partners, who called on Southwest to work with the hedge fund on its suggestions.
It said other Southwest investors expressed their support for Elliott’s stance privately.
Elliott said Southwest pilots have also called for corporate changes in the past.
Meanwhile, Jordan has been meeting with investors to garner support against Elliott’s advancements.
“Don’t be fooled – this is a battle for the heart of our company and our future – your future,” Jordan said in a staff memo last week.
But Elliott claimed in its letter that the fight is for Jordan and Kelly to “continue to control Southwest, on their terms, for as long as they wish.”
With Post wires
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