Elliott Investment Management has escalated its increasingly bad-tempered dispute with Southwest Airlines via a letter, seen by Airport Technology, to “Fellow Southwest Shareholders” that accused the carrier’s management of falsehoods and “arrogance,”
The investment firm, which under the leadership of Paul Singer has become known as an activist fund, holds 11% of the low-cost airline’s shares. It made the full extent of its $1.9bn shareholding public knowledge in June and explained its plans to shake up the board and Southwest’s business practices from within.
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“The reality is that today, Southwest needs fresh, proven executive leadership from outside of the Company to restore its once-industry-leading performance and return it to its rightful place atop the airline industry,” the new letter spelled out.
Elliott has consistently been critical of Chairman Gary Kelly and CEO Bob Jordan’s tenures at the top of the company but has now stepped up its criticism of their actions – and reactions to Elliott’s proposed changes.
The fund has proposed 10 figures from across the global transport sector to join the board, including Ryanair’s former CFO Michael Cawley, Federal Railroad Administrator Sarah Feinberg, Robert Milton and Gregg Saretsky, former CEO’s of Air Canada and WestJet respectively.
But the current leaders of Southwest have rejected the changes, and according to Elliott, stated their intention to “fight” the shareholder-led initiative.
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By GlobalDataThe incumbent’s actions were branded “arrogant and irresponsible in the extreme” in Elliott’s letter, signed by John Pike, Partner and Bobby Xu, Portfolio Manager.
“Southwest’s leadership remains unwilling to admit its mistakes,” it further alleges.
“As we said when the assigned seating change was announced, “too little, too late” is not a strategy. In fact, the unilateral implementation by Southwest’s current leadership of a series of hasty, ad-hoc changes designed to boost its stock price in the short term represents a significant risk to the Company’s long-term well-being.”
“We have seen this movie before, and it rarely ends well, because there is no one more short-term-oriented at the expense of future value than a beleaguered CEO trying to preserve his or her job,” it read.
The letter was sent in reaction to the “poison pill” strategy employed by the airline.
Although Chair Gary Kelly said Southwest made “good faith effort[s]” to engage with Elliott, he said the plan to disable its share-voting powers was in the best interest of other shareholders, and the company.
“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 fulfil its fiduciary duties to all Shareholders,” he said.
The plan is known as a ‘poison pill’ in financial circles because it is intended to make taking a controlling stake in the company distasteful for the investor.
Elliott’s letter ended with confirmation of a meeting between the investment firm and Southwest’s board on 9 September, but warned of “unilateral half-measures” from the airline’s current management as a distraction tactic.
“But in the absence of these leaders rising to the occasion, we are convinced the next step will be for you, Southwest’s owners, to have a direct say in your Company’s future,” it finished.
In response to the letter, a Southwest spokesperson told Airport Technology it was working towards a “collaborative solution” and claimed it had made “overtures” to the investment firm.
“We welcome the opportunity to discuss ideas that would drive sustained Shareholder value as we work to reach a collaborative resolution. Southwest has made multiple overtures to engage with Elliott, and we remain prepared to meet on Sept. 9.”
“Southwest invites feedback and during the past several months, our Board and Leadership have met with many of our Shareholders to hear from them directly. We look forward to sharing details on our continued transformation at our Investor Day on Sept. 26,” they said.
