Southwest Airlines implements a "poison pill" strategy to counter activist Elliott Management's takeover attempt.

• To prevent an attempt by activist Elliott Management from taking control, Southwest Airlines has implemented a shareholder rights plan.
• Elliott is pushing to oust Southwest CEO Bob Jordan and chairman Gary Kelly.

In response to activist Elliott Management's investment in the airline and push to remove CEO Bob Jordan and chairman Gary Kelly, American Airlines announced on Wednesday the adoption of a shareholder rights plan, commonly referred to as a "poison pill."

The poison pill will only activate if Elliott or another investor holds at least 12.5% of the company. If this condition is met, all other shareholders will be entitled to purchase one new Southwest share for every share they currently own at a 50% discount.

Elliott's antitrust filings allowed the activist to acquire a larger stake, which led Southwest to adopt the poison pill.

Since its initial investment, Southwest Airlines has made a concerted effort to collaborate constructively with Elliott Investment Management and remains receptive to any suggestions for sustainable value creation, as stated by Kelly. According to sources, Elliott and Southwest management recently met in person just two weeks ago.

An activist threat prompted the rental car company to adopt a poison pill in 2013, which would have weakened Elliott's control over voting.

Southwest has two law firms, Vinson & Elkins and Kirkland & Ellis, with well-regarded activism defense practices, and two banks, Bank of America and Morgan Stanley, serving as its bankers.

Elliott did not immediately respond to a request for comment.

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