Southwest Airlines adopts 'poison pill' to fend off activist Elliott Management

Southwest Airlines said 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 shares added 1% on Wednesday after Southwest's announcement. Other major U.S. airlines also rose.

Elliott disclosed in June that it had amassed a $1.9 billion stake, or about 11% of Southwest. The firm called out Southwest's underperformance relative to some of its larger airline rivals that offer more products like premium seating.

Southwest said the poison pill was adopted in part because Elliott had made filings with antitrust authorities, known as HSR filings, that would allow the activist to acquire an even larger stake by next week. There is a 30-day waiting period after making an HSR filing, suggesting that Elliott began that process around the same time that it disclosed its stake in June.

"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