Southwest Shareholder Rights Plan: What We Know

Southwest Airlines has announced a new shareholder rights plan, which the company claims is pushback against Elliott Investment Management’s recent announcement of a $2 billion investment into the company.

The announcement is being called a “poison pill” for the discount airline. Let’s take a look at what else we know about this latest move by the airline.

New Details About the Southwest Shareholder Rights Plan

The Dallas Morning News reports that a shareholder rights plan with a limited lifespan was authorized by the board of directors of Southwest Airlines in response to pressure from an activist investor who wanted to shake up the firm.

The rights plan is applicable to all Southwest shareholders, present and future, and it takes effect immediately. A rights plan, also known as a “poison pill” in the financial community, works to prevent an outside party from purchasing a company. This specific plan allows all other shareholders to purchase stock at a discounted price after a shareholder purchases a predetermined amount of the company’s common stock.

“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 fulfill its fiduciary duties to all shareholders,” said Gary Kelly, executive chairman of the board, in a statement to the outlet. “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. Our board and management team remain focused on restoring our industry-leading financial performance and building a sustainable and profitable future for the airline and its shareholders.”

In accordance with the plan, Southwest will issue one right for each share of common stock. These rights will trade with Southwest common stock at first and can only be exercised in the event that a person or group purchases 12.5% or more of the company’s outstanding common stock, which is the plan’s trigger percent.

The shareholder rights plan expires in a year.

Elliott Investment’s $2 Billion Infusion

News of Southwest’s shareholder’s plan comes a few months after Elliott Investment’s announcement of a $2 billion infusion of capital into the faltering company.

The Wall Street Journal claims that these adjustments are intended to boost the shares of the low-cost airline, which have underperformed by 4% so far this year. Paul Singer’s investment group claims it will meet with high management of Southwest Airlines to discuss the airline’s issues.

Elliott Investment has successfully revived several other early-stage businesses, such as Goodyear Tire & Rubber, NRG Energy, and Crown Castle. The organization has a reputation for swapping around CEOs.

According to Reuters, the investment firm stated, “We believe that new leadership is required at Southwest,” in a letter to the airline’s board. The airline claimed that its “poor execution” and its leadership’s “stubborn unwillingness” to revise the company’s plan were to blame for the carrier’s dismal performance.

Since the beginning of the COVID-19 pandemic, Southwest Airlines has experienced problems; a critical low point was reached in 2022 when its antiquated technological systems were unable to manage a significant interruption. Before 2020, the airline, which was founded in the 1970s, produced nearly 50 years of profits in a row because of its exceptional customer service and affordable pricing.

Southwest Airlines started to show up in Google Flights searches more recently. Prior to this, the airline had disabled its fares from appearing in searches on Google Flights and online travel agencies such as Expedia.com. However, Southwest’s fares were initially made available on Google Flights with other airlines’ pricing on May 22.

The airline prefers that passengers make their reservations directly on its website, according to Thrifty Traveler. This is still the case; aggregator customers will still be redirected to the Southwest Airlines website to finalize their trip reservations. Now that Southwest Airlines tickets are available alongside those on other airlines, anyone searching for a good price can choose the one that best fits their budget.