After buying up a $1.9 million stake in Southwest Airlines (LUV) in June 2024, hedge fund Elliott Investment Management has wasted no time expressing its desire to see a complete overthrow of the airline's leadership.
It called Southwest's recent efforts to break a long string of unprofitable quarters by introducing paid seating "too little too late" and was uncompromising in its call to oust chief executive Bob Jordan and board chairman Gary Kelly as well as shake up the board with aviation insiders such as former Air Canada (ACDVF) CEO Robert Milton and Virgin America head David Cush.
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Responding to growing investor pressure, Kelly announced that he would retire from his role as head of the board at the start of September while Jordan lived to see another day even as five other members of the board are now also on the way out.
Elliott has officially called a shareholder meeting (here is what that means)
Elliott, which has recently bought up the upwards of 10% of shares necessary in order to call a shareholder meeting that can put the ousting of the CEO to a vote, has now announced that it plans to hold it as early as the week starting on Sept. 30.
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Southwest has repeatedly denied calls to oust Jordan with statements saying it believes it "has the right leadership team in place to lead Southwest Airlines forward."
"Unfortunately, Southwest's management and Board have chosen a go-it-alone path with the goal of obstructing a leadership change that is urgently needed," Elliott Partner John Pike and Portfolio Manager Bobby Xu wrote in a Sept. 24 letter addressed to shareholders. "Let us be clear: Whatever 'difficult decisions' management has decided must be made, they are the product of a failed management team that has delivered years of deteriorating performance and is now taking any action – no matter how short-sighted – that they believe will preserve their own jobs."
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Hedge fund also calls on investors to buy back shares
The letter also advises shareholders to call back any of their shares in order to ensure that they can vote in the election and accuses Southwest of previously undertaking a "poison pill" strategy to sell more shares to existing shareholders as well as setting "false record dates" with banks to limit which shareholders are on the books to vote when a meeting is held.
"These 'false record dates' will enable Southwest to set its actual record date for a very short time after the special meeting is called – possibly the very same day," the letter reads further. "This maneuver would leave some Southwest shareholders unable to vote their full share position at the special meeting."
In order to encourage shareholders who agree with the firm's desire to see Jordan replaced to be ready to vote, Elliott is advising shareholders to check the status of their shares by Oct. 7 at the latest.
"If any of your shares are currently on loan, you can instruct your broker to recall any loaned shares to ensure you are 'long' for your entire eligible position," Pike and Xu write. "Shareholders should be ready for whatever record date is set by the Southwest Board."
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