After over four months of public conflict with activist investor Elliott Investment Management, Southwest Airlines (LUV, Financial) might be nearing a truce. Sources indicate that discussions are underway for a potential settlement to avert a proxy battle over board control. Elliott has suggested a framework allowing proxy rights without controlling the board. Negotiations continue, but no final agreement has been reached.
Southwest Airlines' stock has dropped approximately 40% over the past three years, reducing its market value to around $18 billion. Despite a 20% increase in the past year, it still lags behind industry peers. Elliott, holding about $2 billion in Southwest shares since June, has called for strategic and leadership changes, criticizing the board chairman Gary Kelly and CEO Bob Jordan for resisting necessary operational upgrades.
In September, Southwest announced that Gary Kelly and six board members would step down, while maintaining support for CEO Bob Jordan. The airline also revealed major policy changes, including selling designated seats and offering premium fares with more legroom starting next year, while retaining free checked bags.
Elliott has nominated eight directors for the board and called for a special shareholder meeting on December 10. Southwest responded by stating its board has tried to reach a constructive resolution with Elliott, offering to appoint up to three Elliott-nominated directors, and deemed the special meeting request unnecessary.
Last month, Southwest disclosed a $2.5 billion stock repurchase plan, introduced a "poison pill" strategy to defend against Elliott, and announced the creation of a new finance committee to oversee future strategic plans.
