Southwest Airways CEO Bob Jordan is scrambling to realize investor help whereas buckling down for a proxy combat as activist hedge fund Elliott Funding seeks to oust him and two-thirds of the board.
“If it’s a combat they need, it’s a combat they may get,” Jordan mentioned in a Wednesday memo to employees seen by Reuters.
Jordan – who grew to become CEO in 2022 after a 30-year profession on the firm – has been assembly with buyers to attempt to garner their help.
The investor tour comes after Elliott revealed its hand final week, saying it planned to overhaul 10 of the board’s 15 members earlier than pushing out Jordan and Chairman Gary Kelly.
The Southwest boss advised staffers he met with buyers on the East Coast and West Coast over the previous two weeks. He additionally held conferences with union officers, sources advised Reuters.
Elliott, headed by billionaire investor Paul Singer, has gained a repute for turning round downtrodden firms with a typically aggressive method. Most just lately, the agency was integral in pushing out Starbucks CEO Laxman Narasimhan and appointing Brian Niccol, the previous Chipotle boss who led the chain’s shares skyward.
Elliott, which revealed its sizable stake in Southwest in June, has blamed the Dallas-based airline’s “decades-old method” and low inventory value on Jordan and Kelly.
Southwest has cemented its model as a low-cost airline and buyers reportedly fear the activist agency might change the airline’s repute and scare off prospects.
“Don’t be fooled – this can be a battle for the center of our firm and our future – your future,” Jordan mentioned within the workers memo.
Southwest shares are down 6.2% up to now this yr, buying and selling at $26.70 on Monday.
Its working prices are up 23% because the pandemic, whereas its unit revenues inched up simply 6%.
Southwest’s working margin dropped to 0.2% within the first half of this yr – down from greater than 13% in 2019.
In the meantime, rivals Delta and United posted working margins of 9.5% and seven.4%.
Southwest has been hit exhausting by its reliance on Boeing, which is beneath strict regulatory scrutiny after a variety of security troubles.
And like different low-budget airways, Southwest has struggled to compete in price wars with premium airways that provide a spread of ticket choices.
So the corporate ditched its longstanding custom of not assigning seats and introduced it will begin selling premium tickets next year with further legroom.
Southwest mentioned it can think about board adjustments, however not a CEO swap. However sources on the airline advised Reuters that Elliott shouldn’t be prepared to interact in significant dialogue till Jordan and Kelly are out.
Elliott mentioned it plans to name a particular shareholder assembly quickly to vote on board members, so Jordan is probably going calling on buyers to arrange for the vote.
Former United CEO Oscar Munoz handled a proxy battle of his own in 2016 whereas recovering from coronary heart transplant surgical procedure. He mentioned he doubts Elliott will have the ability to overhaul the board.
“On the subject of the activists, they do have some good factors,” Munoz advised Reuters. “How do you start to counteract these factors?”
He mentioned Southwest should make some board adjustments to appease Elliott, however Jordan ought to be “left to do his work.”
It appears Southwest has already tried to compromise with Elliott, bringing on a brand new board member with airline trade experience after the agency criticized the board for not having sufficient trade vets.
However Elliott mentioned the adjustments had been “too little, too late.”
Two Southwest buyers mentioned the hedge fund must share extra particulars from its revamp plan.
Elliott expects their adjustments to drive Southwest’s inventory to $49 a month inside a yr, which might characterize greater than an 85% improve. However it hasn’t shared specifics, in addition to the management replacements.
Lisa Silverman, senior managing director at international threat consulting agency K2 Integrity, mentioned it will be dangerous for Elliott to name a particular assembly since buyers typically vote with administration.
However Jordan emphasised that the particular assembly is “hypothetical and hypothesis.”
“Elliott is operating a predictable playbook meant to…make you are feeling that they’re in cost,” Jordan mentioned. “They don’t seem to be.”
With Publish wires
