Southwest prepares for proxy fight with Elliott Investment

VaselineAugust 14, 2024

0 2 minutes read

Southwest prepares for proxy fight with Elliott Investment

Southwest Airlines (LUV) is gearing up for a proxy fight with activist investor Elliott Investment Management, according to media reports. That sparked a choppy session for its shares on Wednesday.

Elliott announced plans to nominate 10 executives to Southwest’s 15-member board in an attempt to reshape the company’s leadership, according to The Wall Street Journal. Proposed nominees include former Virgin America CEO David Cush and former federal transportation regulator Sarah Feinberg. Elliott also called for the replacement of Southwest CEO Bob Jordan and the removal of Executive Chairman Gary Kelly, the WSJ said.

“The strong qualifications of these candidates stand in contrast to the current board, which prior to Elliott’s June 10 letter did not have a single independent director with airline experience,” Elliott said in a statement.

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To allow shareholders to vote on proposed directors, the investment firm plans to call a special meeting, which it can do given that it owns an 11 percent stake in the discount airline. Under Southwest’s bylaws, an interested party must own 10 percent of the company to schedule a special meeting.

Southwest responded to news of the proxy fight by saying its board tried to engage constructively with Elliott, but the activist investor “rejected those efforts at every turn,” the WSJ said. Despite that, the airline remains open to discussions and will evaluate Elliott’s board candidates, it added.

Elliott disclosed a roughly $2 billion stake in LUV in early June and said it would push for changes to reverse the airline’s recent underperformance. Shortly thereafter, Southwest adopted a “poison pill,” which kicks in after a shareholder accumulates a stake greater than 12.5 percent.

Is Southwest stock a buy, sell or hold?

Analysts have mixed feelings about the industrial stock. Conformable S&P Global Market Intelligencethe consensus analyst price target for LUV stock is $25.32, which is right around where the stock is trading at the time of writing. Meanwhile, the consensus recommendation is Hold.

Financial services firm Jefferies is more bearish than consensus, as evidenced by its Underperform rating (equivalent to a Sell) and $20 price target on LUV stock.

“While Elliott may call a special meeting of LUV’s board, we doubt the proposed 10 board members (yet to be confirmed) will be supported by the current shareholder base,” Jefferies analyst Sheila Kahyaoglu said in an Aug. 13 note. note. “We expect that investors are unlikely to vote out current management without maintaining a going-concern plan, especially as LUV’s recent actions have shown an increasing willingness to adjust in ways that challenge Elliott’s ‘stagnant’ characterization.” .

Jefferies’ $20 price target is more than 20% above where Southwest currently trades.

VaselineAugust 14, 2024

0 2 minutes read

Vaseline

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