Southwest Airlines’ board of directors has adopted a rights plan aimed at fending off activist shareholders gaining control of the company.
Under the plan, Southwest will issue one right for each share of common stock, which will generally only become exercisable if any one person or group acquires 12.5% of the company’s outstanding stock.
That would give those holding the rights – which exclude any group that triggers the rights plan — the chance to acquire Southwest shares at a 50% discount to the market price.
The move comes after Elliott Investment Management, a firm owning an 11% economic interest in Southwest, last month called for major leadership and strategic changes to guide the airline into a more profitable future.
“In light of the potential for Elliott to significantly increase its position in Southwest Airlines, the board determined that adopting the rights plan is prudent to fulfil its fiduciary duties to all shareholders,” says Southwest Airlines executive chair Gary Kelly.
”Southwest Airlines has made a good faith effort to engage constructively with Elliott Investment Management since its initial investment and remains open to any ideas for lasting value creation.”
Southwest says the rights plans is similar to schemes adopted by other publicly traded companies and will remain in place for one year.
The low-cost carrier says the initiative is designed to ”deter the acquisition of actual, de facto or negative control of Southwest Airlines by any person or group without appropriately compensating its shareholders for that control”, but is not intended to preclude the board from considering offers that are ”fair or in the best interests of shareholders”.
Elliott wrote a scalding letter to Southwest’s board of directors on 10 June, calling for a C-suite overhaul and blasting the carrier’s “stubborn unwillingness to evolve” in the hyper-competitive US airline sector.
Southwest Airlines leaders hit back at the criticism from Elliot and Kelly reiterates his belief the carrier remains on track for a profitable future. ”We are confident that we have the right strategy, the right plan, and the right team in place to succeed,” he says.
