There has been a major and unexpected restructuring of the board of directors of Southwest Airlines between the current board and the Elliot Investment Management group.
“Elliott Investment Management has started a board power struggle at Southwest Airlines (LUV.N), seeking to replace 10 of 15 directors. The hedge fund is pushing to fire the airline’s chief executive and improve performance,” Reuters reports.
According to Southwest’s official press release, “Elliott recently agreed to meet with Southwest Airlines in early September to discuss a mutual solution, including further significant board renewal and other corporate governance improvements. Instead, however, Elliott has unilaterally decided to publicly announce his intent to replace a large portion of Southwest Airlines’ board of directors.”
Southwest Airlines responded to Elliott management’s campaign and intent to replace the majority of its board by nominating 10 new candidates. The airline emphasized its intent to work constructively with Elliott, noting that despite its best efforts to collaborate, Elliott has chosen to pursue his agenda publicly. Southwest’s board and leadership team are open to discussions and will consider Elliott’s nominations as part of its ongoing board renewal process. The airline remains focused on improving financial performance, customer experience and shareholder value. To do so, several new initiatives have been implemented and a comprehensive plan is scheduled to be detailed during an investor day in September.
In addition, “Southwest Airlines’ board and leadership team remain open to discussions with Elliott to discuss ideas for increasing shareholder value, and the board will evaluate Elliott’s proposed candidates as part of its ongoing board renewal process. No immediate action is required by shareholders,” Southwest Airlines said.
Southwest Airlines has actively renewed its board of directors, adding eight new independent directors over the past three years. The company is confident in its current leadership. The airline is advised by Bank of America Securities and Morgan Stanley and receives legal support from Vinson & Elkins and Kirkland & Ellis. The press release also includes a cautionary note about potential risks and uncertainties that could affect the company’s future performance.
The Associated Press also adds: “Elliott has amassed a roughly 8% stake in Southwest, according to a filing Tuesday. The airline’s shares have fallen 12% this year, while the S&P 500 has gained 14%. It hasn’t been a stellar year for airlines, but Southwest’s shares have suffered more than those of Delta Air Lines and United Airlines. The company lagged far behind Delta, United and American Airlines in operating margin in the second quarter, and analysts expect Southwest to lose money in the third quarter.”
