Southwest Air adopts 'poison pill' as activist investor Elliott takes significant stake in company

Southwest Airlines has adopted a ‘poison pill’ following activist investor Elliott Investment Management taking a significant stake in the company.

The airline said Wednesday that the shareholder rights plan is effective immediately and expires in a year. Southwest shareholders would need to give prior approval for an extension.

Shareholder rights plans, or “poison pills,” allow existing shareholders to acquire shares at a discounted rate to discourage a takeover by an outside entity. Southwest's plan is triggered when a shareholder acquires 12.5% of more of its common stock, which would let all other shareholders buy stock at a 50% discount.

Southwest said that it adopted the rights plans due to several concerns, including Elliott's approximately 11% stake in the company and the flexibility that the firm has to acquire a significantly greater percentage of Southwest's voting power across two of its funds starting as early as July 11.