Southwest and Elliott: A Settlement on the Horizon

Southwest Airlines and activist investor Elliott Investment Management are nearing a settlement that could bring an end to their proxy fight, according to a source familiar with the matter. The settlement, which could be announced as soon as Thursday, would grant Elliott significant representation on the company's board.

Elliott, led by Paul Singer, has been pushing for strategic and leadership changes at Southwest, citing years of underperformance. The activist investor amassed an 11% stake in the airline and initially sought the removal of CEO Bob Jordan and Chair Gary Kelly. In September, Southwest announced a board revamp, with Kelly and six directors stepping down, and the board size reduced to 12 members.

The settlement is expected to address Elliott's initial demands, potentially leading to a more balanced board composition. However, the specific board seats that Elliott's nominees will occupy remain unclear. The settlement could influence the balance of power on the board, with Elliott's nominees likely to play a significant role in shaping the airline's future strategy.

The settlement may have implications for Southwest's stock performance and market value. Shares of the Dallas-based airline have fallen around 40% over the last three years, leaving the company with a market value of about $18 billion. While Southwest's stock has risen by roughly 20% in the past year, it still trails peers' stock performance.

The settlement could also impact Southwest's ongoing operational and strategic plans, such as the $4 billion profit improvement plan announced in September. The plan aims to add $4 billion of operating profit by 2027 and was reportedly in the works before Elliott disclosed its stake. The settlement may influence the implementation of this plan, with Elliott's nominees potentially playing a role in its execution.

In conclusion, the settlement between Southwest Airlines and Elliott Investment Management could bring significant changes to the airline's board composition and leadership. The agreement may address Elliott's initial demands and have implications for Southwest's stock performance, market value, and strategic plans. As the details of the settlement emerge, investors and stakeholders will be closely watching the developments at Southwest.