Southwest Airlines (LUV) is bracing for a proxy fight with activist investor Elliott Investment Management, according to media reports. This has sparked a choppy session for its shares Wednesday.
Elliott announced plans to nominate 10 directors to Southwest's 15-member board in a bid to reshape the company's leadership, according to The Wall Street Journal. Among the proposed nominees are David Cush, former CEO of Virgin America, and former federal transportation regulator Sarah Feinberg. Elliott has also been calling for the replacement of Southwest CEO Bob Jordan and the removal of Executive Chairman Gary Kelly, the WSJ said.
"The strong qualifications of these Candidates stand in contrast to those of the current Board, which prior to Elliott's June 10 letter lacked a single independent director with airline experience," said Elliott in a statement.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
To allow for a shareholder vote on its proposed directors, the investment firm is planning to call a special meeting, which it can do considering it has an 11% stake in the discount air carrier. According to Southwest's bylaws, a stakeholder must own 10% of the company in order to schedule a special meeting.
Southwest responded to the proxy fight news by stating that its board had attempted to engage constructively with Elliott, but the activist investor "dismissed those efforts at every turn," the WSJ said. Despite this, the airline remains open to discussions and will evaluate Elliott's board nominees, it added.
Elliott unveiled a roughly $2 billion stake in LUV in early June and said it would push for changes to reverse the airline's recent underperformance. Shortly after, Southwest adopted a "poison pill," which goes into effect after a shareholder accumulates a stake greater than 12.5%.
Is Southwest stock a buy, sell or hold?
Analysts have mixed feelings on the industrial stock. According to S&P Global Market Intelligence, the consensus analyst target price for LUV stock is $25.32, which is right around where shares are trading at the time of this writing. Meanwhile, the consensus recommendation is Hold.
Financial services firm Jefferies is more bearish than the consensus, as evidenced by its Underperform (equivalent to a Sell) rating and $20 price target on LUV stock.
"Although Elliott is likely able to convene a special meeting of the LUV board of Directors, we are doubtful that the 10 proposed (still unconfirmed) board members would be supported by the current shareholder base," said Jefferies analyst Sheila Kahyaoglu in an August 13 note. "We expect investors are unlikely to vote out the current leadership without entertaining a go-forward plan, particularly as LUV's recent actions have shown a growing willingness to adapt in ways that challenge Elliott's 'stagnant' characterization."
Jefferies $20 price target sits more than 20% where Southwest is currently trading.
Related Content
-
More SECURE 2.0 Retirement Enhancements Kick in This YearSaving for retirement gets a boost with these SECURE 2.0 Act provisions that are starting in 2025.
-
Saving for Your Emergency Fund: As Easy as 1-3-6An emergency fund that can cover six months' worth of expenses is far easier to build if you focus on smaller goals at first.
-
More SECURE 2.0 Retirement Enhancements Kick in This Year
Saving for retirement gets a boost with these SECURE 2.0 Act provisions that are starting in 2025.
-
Saving for Your Emergency Fund: As Easy as 1-3-6
An emergency fund that can cover six months' worth of expenses is far easier to build if you focus on smaller goals at first.
-
Stock Market Today: Dow Slides 697 Points on Super-Hot Jobs DataWhen the December nonfarm payrolls report hit the tape, there was no question which way stocks would go at Friday's opening bell.
-
Blowout December Jobs Report Puts Rate Cuts on Ice: What the Experts Are SayingJobs Report The strongest surge in hiring since March keeps the Fed on hold for now.
-
Constellation Energy Stock Soars on Its $26 Billion Buy. Here's Why Wall Street Likes the DealConstellation Energy is one of the best S&P 500 stocks Friday after the utility said it will buy Calpine in a cash-and-stock deal valued at $26 billion.
-
Why Walgreens Is the Best S&P 500 Stock After EarningsWalgreens stock is soaring Friday after the embattled pharmacy chain reported strong earnings and gave an upbeat outlook.
-
Delta Stock Remains a Strong Buy After EarningsDelta stock is soaring Friday after the air carrier beat earnings expectations and issued a strong outlook. Here's what investors need to know.
-
The Wrong Money Question to Ask After Trump's ElectionIf you're wondering what moves to make with a new president moving into the White House, you're being dangerously shortsighted. Here's what to do instead.
