Just before the July 4th holiday, Southwest Airlines’ board of directors approved the adoption of a limited-duration shareholder rights plan, effective immediately. The rights plan—which will expire in one year, unless an extension is voted on—comes in response to a public announcement by Elliott Investment Management LP that it has built an approximately 11 percent stake in Southwest.
In addition, the airline’s board noted that Elliott had not reported its full purported position in Southwest on any filings with the U.S. Securities and Exchange Commission and it has made regulatory filings with U.S. antitrust authorities that would allow it to acquire “a significantly greater” percentage of Southwest Airlines’ voting power, starting as early as this week.
What does the rights plan entail?
Should any person or group buy 12.5 percent or more of Southwest Airlines' stock, all other shareholders would be able to buy more shares at a 50 percent discount (or Southwest could give each shareholder one additional common stock). This, essentially, makes it much more expensive for the triggering investor to gain control of the company. Under the rights plan, any shareholder that currently owns more than the triggering percentage (12.5 percent) may continue to own its shares of common stock, but the rights will become exercisable if such a shareholder subsequently increases its ownership by one or more shares.
In a separate move, the board of directors for Southwest appointed Rakesh Gangwal as a member of the board, effective July 7. Gangwal is the co-founder of India's largest airline by fleet size and passengers carried, InterGlobe Aviation, known as IndiGo. He previously held chairman and other executive roles with Worldspan Technologies, U.S. Airways Group, Air France and United Airlines.
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