Starbuck 2.0: Elliot Management Set to Oust Southwest Airlines Leadership During Proxy Fight...

Move over Carl Icahn, because Elliott Management is about to take your place as the King of Hostile takeovers. In short, after shaking up Starbucks’ boardroom like a toddler with a snowglobe as they successfully appointed a new burrito lovin’ CEO into the mix, Elliot Management is now set to go nuclear on Southwest Airlines. 

(Source: Axios) 

According to the SEC filings, from the beginning to the year until now, Elliot Management has grown its stake in the airline company to a nice 7% interest. The reason? They are looking to flip the board like Ty Pennington flips houses in order to oust CEO Bob Jordan and Chairman Gary Kelly (who have run the airline like it’s still 1995). 

(Source: Fortune) 

Which makes sense considering investors have been punching air the past five years as the stock has plunged -49.08% (-10.96% YTD). This is largely due to the fact that the airline, according to Elliot Management, has pulled a blockbuster and not adapted to the sign of the times. 

Southwest's technology, for one, is said to be completely outdated, and has led to a range of issues like: high labor costs, Boeing delivery delays, and thousands of cancellations. What’s funny about this though, is that in light of the outdated system, it may have been the reason that Southwest went unscathed during Crowdstrikes apocalyptic outage earlier this month.

(Source: Skift) 

However, even still, the ugly financials of the company continue to tell investors and Elliot Management (who has a $2 billion stake) that Southwest is about as stable as a crack head's last tooth. 

(Source: Giphy) 

For instance, back in March, Southwest Airlines missed earnings estimates harder than a toddler misses their mouth with a spoon as EPS and revenue whiffed predictions by -7.06% and -1.48%, respectively. 

However, while June brought some glimmer of hope as they beat EPS estimates by 14.66% and revenue by 0.25% - The year over year results were nothing short of disappointing. Sure, revenue jumped a smidge above 4%, but net income, net profit margin, and operating income all plummeted by -46.27%, -48.61%, and -49.94%. Nooo bueno my friends. 

(Source: NBC) 

This is the reason why Elliot ain’t pulling no punches as they are nominating a new slate of directors, including airline veterans like former Virgin America CEO David Cush and ex-Air Canada CEO Robert Milton. See: Let me help you, by kicking you out. 

(Source: Giphy) 

On the other hand, Southwest has been insisting that they’ve got the right team in place by stating: “We are confident in our leadership”. Are you sure about that though? Those are some darn tootin bold words for a company whose stock has plunged nearly -50% in a span of five years.

But alas, Southwest is definitely bracing for impact as they’ve adopted a “poison pill” to prevent Elliot from snatching up more than 12.5% of the company. However, even with that failsafe in place, it won’t stop Elliot from calling a special shareholder meeting in order to “strengthen oversight” and “upgrade management”.

(Source: AP) 

So with all of that said, what’s the takeaway here for investors?

Well in short, if Elliott succeeds, it could mean major changes for Southwest’s operations. Assigned seating, premium options, and red-eye flights are already on the table, and the hunt for a new CEO is also in the mix. 

(Source: Nation World) 

For Southwest Airlines and investors? Well it’s a double-edged sword. On one hand, Elliots involvement (if they get their way) may drive up the stock price. Prime example is Starbucks, which soared over 20% yesterday after former Chipotle CEO, Brian Niccol, became the company’s new commander and chief. 

(Source: CBS) 

However, if the current leadership fails to sacrifice themselves for the good of the company, the turbulence (pun intended) could keep Southwest's stock grounded inevitably. 

Now of course, nothing is set and stone yet as this story and the proxy results are still in question. But still, it’s definitely worth keeping your eyes on Southwest as this saga continues to develop - especially given the fact that the stock is currently up +3.11% over the past five trading days. 

(Source: Google Finance) 

Obviously, only time will tell which direction the stock ends up heading, but in the meantime enjoy the show, and make sure you’re in the know. Things could get juicy really fast. 

At the time of this writing, Southwest Airlines is down -0.59% on the day. 

Stocks.News holds postions in Starbucks Corporation as mentioned in the article.