Elliott breaks down Southwest ownership in new regulatory filing

By Svea Herbst-Bayliss

NEW YORK (Reuters) - Elliott Investment Management on Monday said in a regulatory filing that it has a 7% beneficial ownership in Southwest Airlines, giving a breakdown of what it owns as it tries to overhaul management and improve financial performance.

The 7% beneficial ownership is made up of 23.3 million common shares and 18.6 million physical derivative agreements, or physically settled swaps, the filing shows.

In total, Elliott has a roughly 11% economic interest, which is made up of common stock and derivatives, a figure that has not changed since the hedge fund's stake in Southwest became public in June, the filing says.

Investors are required to make a so-called 13D filing with the Securities and Exchange Commission after crossing a 5% ownership stake.

The Elliott filing also offers clues to its possible plans.

The firm said again that the airline is undervalued and that management and board change is required to help improve its strategy and performance. It is pushing for Bob Jordan, who has been CEO since 2022, and Gary Kelly, who is now executive chairman after having been CEO for years, to be replaced and it wants the board to be overhauled with new directors.

In the filing on Monday, Elliott said again that it has identified executives who could become board candidates. And it said for the first time that it intends to allow shareholders a chance to vote on director candidates, whether at a special meeting or the annual meeting, laying the groundwork for a possible boardroom challenge.

Activist investors can propose candidates for election at a company's regularly scheduled annual meeting or in some cases they might be able to call for a special meeting where an election could also be held.

At Southwest, an investor may call for a special meeting only if that investor owns 10% of the company's common shares. At the moment Elliott owns less than 10% in common stock, but the hedge fund has been accumulating common shares rapidly, according to the filing.

Southwest reacted to Elliott's investment by adopting a shareholder rights plan or poison pill that would kick in after one investor acquires 12.5% or more of the stock and allow other shareholders to buy more stock at a discount to try and prevent a takeover. The company also appointed a new director to the board in July.

Elliott said in Monday's filing that it met with Jordan and members of the board at the company's headquarters. CEO Bob Jordan told CNBC last month "so, far Elliott has shown no willingness to engage in any meaningful conversation. We'd be happy to do that, but it is hard to have a dialogue that is one sided."

Southwest's shares closed at $23.70 on Monday, down 5% on a day where the market fell broadly. Since the start of January, the stock price has dropped 17%.

(Reporting by Svea Herbst-Bayliss; Editing by Stephen Coates)