DALLAS- Elliott Investment Management has requested a Special Meeting of Shareholders to consider removing eight Southwest Airlines (WN) Board members and electing eight Elliott-chosen candidates.
Southwest’s Board deems this request unnecessary and disruptive to the company’s ongoing business transformation.
Southwest Unhappy with Elliott’s Meeting
The Board criticizes Elliott’s timing, suggesting it aims to maximize disruption during a busy travel period. They argue that Elliott lacks understanding of Southwest’s business and prioritizes its interests over shareholders.
Southwest claims extensive shareholder dialogue has informed their recent actions, including comprehensive Board and governance changes. The company reports shareholders’ preference for engagement with Elliott to avoid prolonged conflict.
The Board offered a settlement framework, proposing to interview Elliott’s candidates and appoint up to three to a reconstituted Board. However, Elliott’s latest proposal seeks control of both the Board and management, including installing Robert Milton as Executive Chair.
Southwest accuses Elliott of remaining entrenched in demanding Board control while preventing director candidate interviews. The company notes Elliott’s lack of substantive feedback on Southwest’s strategic plan over nearly four months.
Despite providing Elliott with a detailed preview of Investor Day materials, Southwest reports that Elliott failed to offer input and continued public attacks. The Board questions Elliott’s true intentions given this behavior.
Southwest will review the Special Meeting request by fiduciary duties, Texas law, and company bylaws. The Board intends to discuss the meeting process with Elliott constructively and will provide updates to shareholders.
The company reaffirms its commitment to business transformation, improved financial performance, and recent governance changes.
New Board Member Changes
Southwest Airlines has announced a significant Board transformation plan in response to shareholder pressure and Elliott Investment Management’s demands.
The airline will implement six Director retirements following the November Board meeting and retire Executive Chairman Gary Kelly after the 2025 Annual Meeting.
The company plans to appoint three new Directors, name new Committee Chairs and a Lead Director, eliminate the Executive Committee structure, and create a new Finance Committee. These changes aim to refresh the Board and enhance its skill composition.
Recent appointments include Robert Fornaro, former CEO of Spirit Airlines (NK) and AirTran Holdings Inc., Rakesh Gangwal, co-founder of IndiGo (6E), and Lisa Atherton, President and CEO of Bell. These additions will reduce average Board tenure from 6.8 years to approximately 2.5 years, with 75% of Directors having three years or less tenure.
Southwest has unveiled a three-year transformational plan called “Southwest. Even Better.” This data-driven strategy aims to boost revenue growth and restore industry-leading profitability.
The plan targets approximately $4 billion in cumulative incremental run rate EBIT contribution by 2027 and a Return on Invested Capital (ROIC) of 15 percent or greater.
The Board firmly supports CEO Bob Jordan as the right leader to execute this plan, arguing that leadership change during this transformation would harm shareholder interests. They have set high expectations for Jordan and the Leadership team, pledging to hold them accountable for results.
Southwest has enlisted BofA Securities, Inc. and Morgan Stanley & Co. LLC as financial advisors, with Vinson & Elkins L.L.P. and Kirkland & Ellis LLP serving as legal advisors during this corporate restructuring and strategic shift.
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