Southwest Airlines Co (NYSE:LUV) has adopted a limited-duration shareholder rights plan to safeguard the interests of its investors in the face of an activist campaign launched by Elliott Investment Management.
The plan, effective immediately, aims to prevent Elliott – or any person or group – from gaining control of the company without offering a fair premium to shareholders.
High-profile activist investor Elliott built a stake in the Texas-based airline in June.
"Southwest's rigid commitment to a decades-old approach has inhibited its ability to compete in the modern airline industry," Elliott said in the letter announcing the stake.
Management had shown a "stubborn unwillingness" to modernize, resulting in the airline being saddled with "outdated software, a dated monetization strategy and antiquated operations processes", it added.
Under the plan, Southwest will issue one common stock right for each outstanding share of common stock to shareholders of record.
These rights will initially trade with the shares of common stock and will only become exercisable if a person or group acquires 12.5% or more of the company’s stock in a transaction not approved by the board.
"In light of the potential for Elliott to significantly increase its position in Southwest Airlines, the board determined that adopting the rights plan is prudent to fulfill its fiduciary duties to all shareholders,” said Southwest’s executive chairman Gary Kelly.
The plan is set to expire in one year.