By Svea Herbst Bayliss
NEW YORK (Reuters) – Elliott Investment Management Inc now owns 10% of Southwest Airlines Co’s common stock, exceeding the threshold that allows the hedge fund to call a private meeting at the airline, a person familiar with the matter said.
The news comes days before the two sides are scheduled to meet on Sept. 9 to discuss ways to resolve the problems that have contributed to Southwest’s shares losing about half their value over the past three years.
The hedge fund, one of the world’s most powerful activist investors with $70 billion in assets, has called for the resignation of Chief Executive Robert Jordan and Chief Executive Gary Kelly and has laid out plans to nominate 10 directors to the airline’s 15-person board.
The hedge fund, which had an 11% economic stake through derivatives, successfully converted enough of those holdings into common stock to cross the 10% threshold. Its overall economic stake remained unchanged.
A Southwest representative was not immediately available for comment.
Jordan, Southwest’s CEO since 2022, has said he will not resign and has signaled to employees that he and other executives are prepared to fight Elliott.
Elliott has signaled to other shareholders that it is prepared to take the next steps, including calling a special meeting, unless the company is willing to discuss changes to its leadership.
Special meetings, which are used to solicit shareholder votes on matters that can’t wait until the next annual meeting, are rare. If Elliott calls a special meeting, it would mark a major escalation in its battle with the carrier since its interest in the stock became public in June.
As the airline tries to repair its image and share price, it has also adopted a defensive measure by putting in place a shareholder rights plan that would make it difficult for an investor to accumulate more than 12.5% of the shares.
Southwest announced plans to add more legroom seats, move to assigned seats, and appointed a new board member in July.
Southwest’s stock had lost 50% of its market value in the three years to June 7, when it closed at $27.75, before Elliott’s investment in the airline became public on June 10. The stock closed at $28.92 on Friday. The company’s value has fallen to $17 billion now from $41 billion in 2017, according to Elliott’s research.
Elliott said the improvement measures came too late and did little.
Elliott has previously pushed out top executives, including NRG CEO Mauricio Gutierrez, who insisted he stay on only to resign late last year. NRG’s stock has risen about 160% since Elliott’s stake was disclosed in May 2023.
(Reporting by Svea Herbst-Bailes; Editing by Stephen Coates)
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