Elliott Crosses 10% Threshold In Southwest To Call For Special Meeting

(RTTNews) - Elliott Investment Management L.P. now holds 10 percent stake in Southwest Airlines Co., crossing the threshold that would allow the investment firm to call a special meeting, Reuters reported citing a person familiar with the matter.

The development comes as the airline and the hedge fund, amid its ongoing public fight, are scheduled to meet on September 9 to discuss the problems with the airline company. Elliott can now call a special meeting, unless the airline is willing to discuss leadership changes.

The hedge fund, which manages around $69.7 billion in assets as of June 30, had taken an 11 percent economic stake through derivatives. The firm now converted enough of those holdings into common shares to cross the 10 percent threshold. The investment firm's overall economic stake in Southwest remains unchanged.

Elliott in June had built nearly $1.9 billion stake in the airline, which has been reporting loss as well as weak profits in the past few quarters. Elliot in a letter to the company then attributed the poor financial performance to outdated business software and monetization strategy, poor leadership, and lack of accountability.

The investment management fund also had noted that Southwest' stock dropped over 50 percent over the past three years, causing a decline in the value of employee-owned stock, and profit sharing.

In order to improve the company's performance, Elliot recommended a "Stronger Southwest" plan, under which it required the company to enhance the board, upgrade leadership and undertake a comprehensive business review.

Later in the month, Elliott also criticised Southwest's disappointing trend line of its revenue performance as a response to the outlook for a decline of 4 to 4.5 percent of revenue per available seat mile in the second quarter.

As a response to the June letter, Southwest had reiterated its willingness to meet with the investment firm to further discuss the airline's strategy.

Further, the airline's Board in early July approved a limited-duration Shareholder rights plan, also referred to as a poison pill, aiming to safeguard the firm from hostile takeovers by requiring bidders to negotiate with the board rather than directly with shareholders.

The step was taken following Elliott's disclosure of a 11 percent stake in Southwest, along with its failure to report its full position in Southwest to the SEC, as well as regulatory filings with U.S. antitrust authorities indicating plans to acquire a larger percentage of Southwest's voting power.

Escalating the feud, Elliott in mid-August announced its intention to replace a majority of the Southwest Board by nominating 10 candidates. They included four former airline Chief Executive officers and Deputy Chief Executive officers and six Candidates with complementary expertise in technology, hospitality, consumer-focused businesses, labor relations and regulatory oversight.

The hedge fund also had demanded ouster of Southwest's CEO Robert Jordan and Executive Chairman Gary Kelly.

Southwest then responded that it remains open to conversations with Elliott to discuss ideas to drive shareholder value, and that the Board will evaluate Elliott's proposed nominees.

Southwest is now preparing to provide details on a comprehensive plan to transform its business, improve operational efficiency, and deliver capital allocation discipline during its Investor Day in late September.