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
-
Investing Abroad Could Pay Off — Here's HowCountries overseas are stimulating their economies, and their stocks are compelling bargains.
-
Retire in Belize for Stunning Natural Beauty and CultureBelize offers miles of protected land and ocean, a rich mix of cultures and a chill lifestyle. Best yet — the income requirement is just $2K per month.
-
Why Investing Abroad Could Pay Off
Countries overseas are stimulating their economies, and their stocks are compelling bargains.
-
Are These the Next Stocks to Split?Interactive Brokers' recently split its stock to makes its shares more accessible to investors. Could these high-priced stocks be next?
-
Your Home + Your IRA = Your Long-Term Care SolutionIf you're worried that long-term care costs will drain your retirement savings, consider a personalized retirement plan that could solve your problem.
-
I'm a Financial Planner: Retirees Should Never Do These Four Things in a RecessionRecessions are scary business, especially for retirees. They can scare even the most prepared folks into making bad moves — like these.
-
A Retirement Planner's Advice for Taking the Guesswork Out of Income PlanningOnce you've saved for retirement, you'll need your nest egg to support you for as many as 30 years. For that, you need a clear income strategy, not guesswork.
-
Stock Market Today: Stocks Swing as Trump Scraps Canada Trade TalksDespite a mid-afternoon slip, the S&P 500 and Nasdaq ended the day at new record highs.
-
Why Smart Retirees Are Ditching Traditional Financial PlansFinancial plans based purely on growth, like the 60/40 portfolio, are built for a different era. Today’s retirees need plans based on real-life risks and goals and that feature these four elements.
-
To My Small Business: Well, I've Been Afraid of Changin', 'Cause I've Built My Life Around YouWhile thinking about succession planning might feel like anticipating a landslide (here's to you, Fleetwood Mac), there are strategies you can implement to manage the uncertainty and the transition.
