Southwest Airlines to adopt plan to fend off activist investors

Shares of Southwest Airlines (LUV) ticked up Wednesday morning after the company announced it will implement a shareholder rights plan to fend off activist investor firm Elliott Management. This plan will allow shareholders to purchase one new share for every share they own at a 50% discount, but only if Elliott Management, or another investor, acquires 12.5% of the company.

Morning Brief Anchors Brad Smith and Madison Mills break down the latest development for Southwest Airlines, explaining its "poison pill" tactic hoping to fend off potential M&A.

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This post was written by Nicholas Jacobino

Video transcript

We're also watching airlines this morning.

Shares of Southwest.

They are on the move fractionally higher right now by about nine cents of a percent after the airline said it's going to implement what they're calling a shareholder rights plan.

And this is an effort to fend off activist investor firm Elliot Management.

Shareholders will be entitled to purchase one new share for every share they own at a 50% discount.

But that's only if Elliott or another investor acquires at least 12.5% of the company.

All right, so they're calling it a shareholder rights plan.

What, you should note this as more colloquially, is a poison pill.

Brad.

Yeah, I mean, that's what it boils down to.

They're trying to make sure that they can fend off any major type of activist play that would impact the airline operator.

The seats on the board, Um, and especially if Elliott were to assume a certain position 12.5%.

In this particular case of the outstanding shares of the company, that's exactly right.

And it's interesting because I mean our succession fans out there like myself are going to be familiar with the hostile takeover, but the poison pill would protect against that.

However, obviously you can tell by the name not always giving them the best overall outlook, but it does enable the shareholders to potentially get the best deal possible here.

I do want to out a quote here because we heard Executive Chairman Gary Kelly saying, In light of the potential for Elliot to significantly increase its position in Southwest, the board did determine that adopting the right plan is prudent to fill its fiduciary duties to all shareholders, and the board does continue to believe it has the right strategy.

The right team in place of the plan would be triggered if a person or group does acquire a stake over 12.5% of the firm moving forward.

And, like you mentioned Brad Elliot disclosing roughly $1.9 billion state back in June in that letter to the board and said they feel that their suggestions could boost the stock by over 75% over the course of the next year.

But the details of those plans they included them.

But, you know, obviously Southwest board saying that they've they've got things under lock and key here