Elliott Investment Management is ramping up its efforts to shake up Southwest Airlines (LUV), urging investors to seek new external leadership, according to an exclusive report by Reuters. The investment management firm, led by activist investor Paul Singer, is calling on shareholders to push for new external leadership, arguing that such a change is necessary to secure a “better future” for the airline.
As a result, the activist investor has outlined a three-point agenda to revamp Southwest, which includes a comprehensive board overhaul, leadership changes, and an in-depth business review.
Details of Elliott’s Letter to Shareholders
In a letter to shareholders obtained by Reuters, Elliott Investment Management is ramping up pressure on Southwest Airlines by proposing the formation of a new board-level committee. This committee would conduct a thorough business review and push for “transformational change” within the company. Additionally, Elliott plans to meet with company representatives on September 9 to discuss potential solutions to the airline’s significant challenges.
Elliott has also warned that if Southwest’s current leadership fails to address these issues effectively, the hedge fund will take action to challenge the existing board. Elliott believes that the airline needs a more comprehensive overhaul rather than just a few new directors who are in line with the current management’s long-overdue initiatives. Consequently, Elliott is preparing to call a special shareholder meeting, where investors will have the chance to vote on new board members to drive the necessary changes.
Elliott Pushes for Directors on LUV’s Board
As part of Elliott’s push for new directors on Southwest Airlines’ existing board, the firm announced earlier this month its plans to nominate 10 candidates to the 15-member board. This slate includes former Virgin America CEO David Cush and former Air Canada CEO Robert Milton.
It is important to note that Elliott currently owns around 8% of Southwest’s outstanding shares, with its stake increasing to 11% when including derivatives, according to a recent regulatory filing.
Southwest’s Response to the Activist Investor
In response to the mounting pressure, Southwest Airlines announced a series of strategic changes in July to boost its revenue and overall performance. These changes included offering assigned seats, extra legroom, and introducing overnight flights. However, Elliott dismissed these measures as insufficient.
Southwest did not immediately comment on the developments. While CEO Jordan recently characterized the conflict with Elliott as “a battle for the heart of our company,” the hedge fund argues that the real issue is preventing Jordan and Executive Chairman Gary Kelly from continuing to control Southwest on their terms for as long as they wish.
Is LUV a Good Buy Now?
Analysts remain sidelined about LUV stock, with a Hold consensus rating based on three Buys, eight Holds, and two Sells. Over the past year, LUV has declined by more than 6%, and the average LUV price target of $26.85 implies a downside potential of 4.8% from current levels.
