MW From Southwest to BP, Elliott and other activists are shaking up companies again

By Steve Gelsi

Investors like billionaire Paul Singer have more money than ever to throw around, and they are making their presence felt on Wall Street and Main Street

This week, Southwest Airlines announced that it would start charging its customers for checked bags. The move came after months of relentless pressure from hedge fund Elliott Management, which has demanded big changes to the way Southwest does business since buying a $1.9 billion stake in the airline.

The decision to charge for checked bags for the first time in Southwest's $(LUV)$ nearly 60-year history wasn't the result of a specific request by Elliott. Southwest's management came up with the idea as a way to follow through on efforts to increase value as a result of the pressures it was under, a source familiar with the activist firm said.

Elliott Management is leading a resurgence of activist investors that are making their presence felt from Wall Street to Main Street. These hedge funds buy up minority positions in publicly traded companies while loudly and aggressively demanding changes geared toward increasing stock prices. Last year, 243 activist campaigns worldwide marked the highest total since the record year of 2018, which saw 249 campaigns, according to Barclays's global shareholder advisory group. Activists won 119 board seats in 2024, including five seats at Southwest and four seats each at CVS $(CVS)$ and Norfolk Southern $(NSC)$.

Activists' efforts resulted in 27 resignations of chief executive officers in 2024, a new record, up from 24 in 2023, Barclays says. The percentage of CEO resignations among S&P 500 SPX companies during an activist campaign tripled to 15% in 2024 from 5% in 2020.

With about $71 billion of assets under management, Elliott stands out as the largest of this breed of hedge fund. Founded and run by billionaire Paul Singer, the firm's size means it has more capital to deploy in activist situations. In 2024, Elliott Management was involved in four of the 10 largest activist shake-ups: at Honeywell $(HON)$, SoftBank (JP:9434), Starbucks $(SBUX)$ and Texas Instruments $(TXN)$. The firm buys up shares of a company, wins access to management and then often negotiates changes such as selling off part of the business or generating value for shareholders in some other way.

While the involvement of activist investors often gooses a stock price in the short term, existing management at the targeted company tends to resist change, said Aslam A. Rawoof, a partner at Benesch who specializes in helping senior company officials deal with the growing force of activist investors on Wall Street. Management inherently knows the company better than an outsider, he said, while activist investors may not understand the culture of a business. Critics of activist investors say they push for short-term decisions at the expense of the long-term health of a company, harming its relationship with stakeholders like employees and customers.

Activist investors don't have access to proprietary internal information, with their analysis typically limited to a company's public filings. Sometimes they may take a lesson learned in one industry and attempt to apply it to another, with mixed results.

As more activists look around for deals, companies are taking proactive measures, such as aligning boards with governance structures to fend off activist complaints on that front, Rawoof said. While management may initially find themselves at odds with activist investors, they will usually meet with those who accumulate a significant chunk of stock.

"Usually things are handled quietly through a process before it goes public," Rawoof said. "Some [activists] just want a board seat for a person who'll push for different strategies."

Led by billionaire investors Carl Icahn and Bill Ackman, activist investing became extremely popular on Wall Street in the years leading up to the pandemic. But the strategy receded for several years during the COVID-19 era. Ackman even gave up using loud and public campaigns to get companies to do what he wanted. Now, however, the activist hedge funds are back.

"They've obviously done very well, otherwise they wouldn't grow," said Charles Elson, a retired finance professor at the University of Delaware who studies corporate governance. "If they're in a stock, they think it's undervalued and they'll act to increase its value."

An academic study from 2022 that gathered data from 4,657 hedge-fund activist events between 1994 and 2018 came to a similar conclusion - that activist campaigns typically help companies and their stock prices, despite the accusation from opponents that they only seek short-term pops in stocks.

"The empirical evidence ... supports the conclusion that interventions by activist hedge funds lead to improvements in target firms, on average, in terms of both short-term metrics, such as stock value appreciation, and long-term performance, including productivity, innovation and governance," the study said.

Rawoof said, however, that studies showing stock-price gains after activists take a stake in a company are not entirely reliable. A share price in a company may have gone up anyway, he noted, and sometimes the news of a fresh ownership stake in a company by an activist will move a stock higher, even if the activist does nothing.

Proxy adviser firms such as ISS and Glass Lewis have often favored resolutions from activist investors. This poses another challenge to management seeking to retain full control of a company, because institutional shareholders such as exchange-traded-fund giants BlackRock $(BLK)$ and Vanguard often follow the voting recommendations of ISS and Glass Lewis.

In 2024, Elliott maintained its lead among activist investors with more than a dozen campaigns including Starbucks, Honeywell, Southwest Airlines, Texas Instruments and Softbank, according to data from Barclays. More recently, Elliott has been pushing British oil giant BP $(BP)$ to divest some of its businesses and Phillips 66 (PSX) to sell its midstream assets.

Elliott's stake in Honeywell tipped the scales at about $5 billion, making it one of its largest investments to date. Its stakes in BP, Texas Instruments and Phillips 66 are worth about $2.5 billion each, while its Starbucks holding is valued at about $2 billion.

Other big activist investors include Strategic Capital Management, Starboard Value, Oasis Management and Irenic Capital Management.

A source familiar with Elliott said the firm will likely continue targeting larger companies such as BP and Honeywell.

That means that more S&P 500 SPX components that are widely owned by American investors may draw the attention of Elliott or other activist investors.

Elliott's influence with Southwest, for example, has been strong.

Last year, Elliott sought to have the airline's chief executive, Robert Jordan, removed. However, the fund reached an October 2024 settlement to add six new directors, including five candidates proposed by the activist fund.

As part of the agreement, Jordan's predecessor as CEO, Executive Chair Gary C. Kelly, agreed to expedite an existing plan for him to depart the board at the 2025 annual meeting, planned for May. Under the deal, Kelly departed on Nov. 1.

In a rare interview published last week, Elliott's Singer said index investing has led to a reduction in analyst coverage of stocks and that shareholders increasingly abdicate the role of holding management accountable if stocks are already included in a popular exchange-traded fund.

"Fewer and fewer people are acting like owners, and fewer and fewer companies are accepting the notion that the owners have anything to say to management and the board. It's kind of shocking," Singer said.

"We are among a short list of people who do call for accountability," he said. "And when we win, the shareholders win."

Ronald Orol, a senior editor at The Deal who specializes in shareholder activism, said Elliott stands out as the "800-pound gorilla" in the world of money managers that force change at companies after acquiring large minority stakes in them.

Elliott is also big enough to buy companies outright, such as its purchase in December of a majority stake in American Greetings from private-equity firm Clayton, Dubilier & Rice. But it hasn't pursued many acquisitions in recent years.

"They've been going after bigger and bigger companies, and they are unusual in that they launch more campaigns globally than any other activist fund," Orol said.

Along with buying stock, Elliott also accumulates a position in a target company by buying derivatives such as cash-settled equity swaps. The derivatives give it the ability to toggle up its equity ownership in a company and thereby increase its influence with the board.

Elliott is typically able to negotiate for change without launching a full director-election proxy battle.

One of its most recent U.S. proxy battles was with metals engineering and manufacturing company Arconic. That ended in 2017 after the company's CEO, Klaus Kleinfeld, resigned.

Looking ahead, Elliott will face a different set of challenges with larger companies with its activist playbook, said the University of Delaware's Elson.

As it searches for new activist deals, Elliott may find less low-hanging fruit, because larger companies typically have better governance than smaller ones, Elson said.

There are also plenty of rival players in the activist space.

"There's a huge amount of competition in this business, with too many people chasing fewer and fewer companies," Elson said. "That means there are fewer and fewer legitimate companies to target. That will be interesting to see how it plays out."

-Steve Gelsi

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March 14, 2025 10:51 ET (14:51 GMT)

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