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Southwest Airlines Co. and Elliott Investment Management LP are discussing a settlement that would end their months-long power struggle, Bloomberg reported over the weekend, citing unnamed sources familiar with the matter.
The deal would see Elliott — a Florida-based activist investor that has been advocating for leadership changes at Southwest — gain seats on the Dallas-based airline's board but not majority control, according to Bloomberg.
Elliott recently proposed a slate of eight new board directors and called for a December meeting of shareholders to vote on the new board. It was the latest escalation in the firm's repeated pushes for change at Southwest (NYSE: LUV).
Southwest and Elliott declined to comment to Bloomberg and the publication noted the talks were not finalized and could fall through.
But even the potential for a settlement is big news. Any negotiations between the two sides could have a significant impact on one of the biggest turning points in the 56-year history of Southwest, as it embarks on major changes including the introduction of assigned seats and premium seating.
Elliott first disclosed a roughly $2 billion stake in Southwest in June. Since then, it has increasingly called for changes at the airline and blamed leadership for a stagnating share price. As of Oct. 18, Elliott reported having a "combined economic exposure" to 11% of Southwest's common stock.
Southwest has been going through a challenging financial period, with profits stalling and its share price wavering. But airline executives have pushed back on Elliott's claims that its turnaround plan doesn't go far enough. After the activist investor's recent call for a Dec. 10 special shareholder meeting, Southwest in a statement called the request "unnecessary and inappropriate" due to the "extreme nature" of the hedge fund’s demands.
"The timing of Elliott's request to apparently pursue board control appears designed to maximize disruption of Southwest's execution of its important business transformation underway as we approach one of the busiest travel periods of the year," Southwest said.
Southwest's stock had fallen about 2% as of mid-day Oct. 21, with shares trading around $30.37 apiece.
Editor's note: This story has been updated with additional information, including latest share price data.
