Southwest Airlines (LUV.US) agency dispute is about to begin! Elliott is rumored to have requested a special meeting to replace the board

The Zhitong Finance App learned that, according to people familiar with the matter, activist investor Elliott Investment Management has notified Southwest Airlines (LUV.US) to hold a special shareholders' meeting to officially launch the company's first agency dispute since 2017.

People familiar with the matter said the activist investor has nominated eight directors to Southwest Airlines board and is seeking to replace the same number of board members. People familiar with the matter said that Elliott has requested a meeting on December 10, local time.

This was Elliott's first special meeting and the first agency dispute since nominating a board director of engineering group Arconic Corp. in 2017. Elliott and Arconic finally reached a settlement before voting.

A representative from Southwest Airlines had no immediate comment. Elliott's spokesperson declined to comment.

Following a meeting with Elliott, Southwest Airlines announced in September that six of its board members and chairman Gary Kelly would be leaving. The company also reduced the number of board members from 15 to 12, a series of changes that essentially opened up three board seats.

Elliott holds 11% of Southwest Airlines and insists he wants CEO Bob Jordan removed from office. Prior to the board downsizing, the investor said it would nominate 10 people. People familiar with the matter said Elliott has since reduced the number of board nominations to reflect the reduction in the size of the board.

Southwest Airlines announced a share repurchase plan on Investor Day in September and detailed the cancellation of the open seat policy.

Stock prices outperform peers

According to information, Southwest Airlines' stock price has dropped by about 40% in the past three years, and its market value has dropped to about 18 billion US dollars. Although Southwest Airlines' stock price has risen by about 20% over the past year, it still lags behind the stock performance of its peers. Delta Air Lines (DAL.US) has risen nearly 50% over the past 12 months, while United Airlines (UAL.US) has risen by more than 50% over the same period.

In June of this year, Elliott revealed that it holds approximately $2 billion in Southwest Airlines shares. After years of poor performance, the investor called for a change in strategy and leadership and blamed Jordan and Kelly.

Southwest Airlines adopted a so-called poison pill strategy to protect itself from Elliott's attacks in July, when the company said it had made a sincere effort to reach out to this aggressive investor. In September, Southwest Airlines developed a comprehensive plan aimed at increasing operating profit by $4 billion by 2027. Jordan said the plan was already in the works long before Elliott announced a shareholding. Jordan described Elliott's agency dispute as a “tactic and game,” and said the agency dispute was bad for the company.

Elliott said in an August letter to Southwest Airlines shareholders that it wanted to avoid being distracted by the agency dispute. The investor said at the time, “Southwest Airlines is a legendary American company and should have the best management staff the board can provide.”

Elliott's “record”

Led by Paul Singer, Elliott is one of the world's busiest and most influential board champions, often trying to avoid intense agency disputes. In recent years, it has triumphed in competition with well-known targets such as Starbucks (SBUX.US) and NRG Energy (NRG.US).

Elliott rarely submits issues to shareholder voting, mainly seeking solutions with target companies. This is the first time since Elliott was founded in 1977 to request an irregular shareholders' meeting — a special meeting.

Note that another activist investor, Artisan Partners Limited Partnership, has also invested in Southwest Airlines.