Southwest Airlines adopts ‘poison pill’ to fend off activist Elliott Management

Southwest Airlines announced Wednesday that it has adopted a shareholder rights plan, more commonly known as a “poison pill,” in response to activist Elliott Management’s investment in the airline and push to oust CEO Bob Jordan and chairman Gary Kelly.

The poison pill will only activate if Elliott — or another investor — acquires at least 12.5% of the company. If that threshold is crossed, all other shareholders will be entitled to purchase one new Southwest share for every share they currently own at a 50% discount.

Southwest said the poison pill was adopted in part because Elliott had made filings with antitrust authorities that would allow the activist to acquire an even larger stake.

“Southwest Airlines has made a good faith effort to engage constructively with Elliott Investment Management since its initial investment and remains open to any ideas for lasting value creation,” Kelly said in a statement. Elliott and Southwest management met in person just two weeks ago, according to people familiar with the matter.

Such a provision would dilute Elliott’s influence and power over voting. Companies often adopt shareholder rights plans in response to an activist threat; rental car company Hertz adopted a poison pill in 2013 in response to “unusual” trading activity that management thought presaged an activist.

Bank of America and Morgan Stanley serve as Southwest’s bankers. Vinson & Elkins and Kirkland & Ellis, two law firms with well-regarded activism defense practices, are Southwest’s lawyers.

Elliott did not immediately respond to a request for comment.

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