3/31/2025

Opinion: Rio Tinto Shareholders Should ‘Trust, But Verify’ Their Board

Bloomberg Opinion (03/31/25) Blas, Javier

Bloomberg Opinion columnist Javier Blas writes, "Rio Tinto (RIO) has a message to its shareholders: Trust us — we know better. Facing an activist investor calling for an end to its dual-listed structure, the mining company wants to preserve its status quo. At the next annual general meetings, shareholders should rebuff the board. Instead of taking the directors at their word, shareholders should adopt the Russian proverb that US President Ronald Reagan popularized during the final years of the Cold War against the Soviet Union: 'Trust, but verify.'" Blas says "the best way to verify whether the board is right is to support the activist’s resolution, pressing for an independent review. The board believes this appraisal would be 'highly duplicative and unnecessary' because it conducted its own in 2024, which — it says — found no reason for change. 'There is no basis for expecting that an additional review, including an independent expert report, would lead to a different conclusion,' the board has told shareholders. It added that Rio Tinto would probably lose money due to taxation rules if it ended its current structure. Perhaps the directors are right, but then there’s truly little risk, other than a few bruised egos and some trivial costs to hire bankers and lawyers, to allow the independent review. After all, the activist is just asking for one. And the money at stake is so vast that even if there’s a small chance the investor is right, it’s worth the try. Granted, if the review finds that terminating the dual listing would be beneficial, then the board would have a big decision to make: The activist, Palliser Capital, believes that Rio should become a wholly Australian company with a primary listing in Sydney and secondary one in the UK. That would be a massive blow for the London Stock Exchange and its FTSE 100 blue chip index, where Rio is the fifth-largest constituent by market capitalization. The potential end of the dual-class structure of Rio Tinto would be a setback for the UK if it moves its primary listing to Australia." Shareholders have a reason to be suspicious of the board’s reasoning: Other companies with similar dual-listed structures have made similar arguments before. And, ultimately, it became clear that not only was it possible — and easy — to end those archaic arrangements, but over time, a simpler setup was in the interest of investors. Rio Tinto should take the activist seriously. Palliser may not have the reputation of Elliott Investment Management, but some of its top people cut their teeth precisely at the aggressive activist. While the size of its stake in Rio Tinto is trivial, the miner could consider the case of giant Exxon Mobil Corp., which in 2021 was defeated by tiny activist Engine No. 1. Size isn’t what matters — it’s the idea. The starting point is complicated: Rio Tinto today has a convoluted configuration that was created nearly 30 years ago. It’s made up of two listed entities that together form the group. One entity, formally known as Rio Tinto Plc, is incorporated in the UK and listed in London, accounting for about 77% of the shareholders. The other, known formally as Rio Tinto Ltd., is incorporated in Australia and listed in Sydney; it accounts for 23% of the shareholding. The British side holds most of the international assets, like its copper mines in Latin America. The Australian entity holds lucrative iron ore mines. Because of different tax rates on dividends, the London-listed shares trade at a discount to the Australian stock (typically, about 15% to 20%). The review is likely to yield a mixed picture, according to Blas, with neither an unequivocal yes, nor an unambiguous no. "Ending a dual listing involves significant guesses about future tax liabilities and the cost of potential all-share deals. It also involves significant conjecture about what investors in very different geographies would do. The board would need to take a cost-benefit view; not everyone is likely to agree with it. Still, an independent review at least presents a starting point to debate. As such, Palliser’s proposal makes sense. Unsurprisingly, two influential shareholders advisers, ISS and Glass Lewis, also support it. I do have a problem with the proposal, however: It calls for forming a committee composed of Rio Tinto’s 'most recently appointed independent directors' with a 'shareholder representative in attendance.' From a governance perspective, the presence of a shareholder sets a worrying precedent that could, in extremis, create a system of board tutelage for every important decision. Even more importantly, if Palliser were the investor representative, it would be effectively 'judge and jury' on a matter in which the fund isn’t an innocent bystander. Palliser should trust other shareholders to do the job and recuse itself. When I asked the fund about it, the activist said, via a spokesperson, it felt it had no choice but to call for the inclusion of an external shareholder due to Rio Tinto’s opacity. But it indicated it was ready to remove itself from contention: 'We would be open to working more constructively with the company on what form this takes, including having a mutually agreed third-party shareholder.'"

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3/25/2025

Corporate Capital Delaware Is Changing Its Law in Fight Pitting Corporate Insiders vs. Investors

Associated Press (03/25/25) Levy, Marc

Delaware lawmakers put aside protests from major investors and approved fast-tracked legislation Tuesday night that backers say will protect its status as the corporate capital of the world. The bill is headed to Gov. Matt Meyer, a Democrat who met with corporate leaders about their concerns about precedent-setting court decisions governing corporate conflicts of interest and urged lawmakers to quickly pass changes to the law. They did, sending the bill through both chambers within two weeks of its introduction, despite shareholders’ lawyers, consumer groups and pension funds slamming it as a giveaway to billionaires and corporate insiders. The House approved it Tuesday night, 32-7, after a unanimous Senate earlier in March. Delaware’s experienced corporate law courts and their well-developed body of corporate case law have become the go-to destination to settle all sorts of business disputes as the legal home of more than 2 million corporate entities, including two-thirds of Fortune 500 companies. The state also reaps billions of dollars from the activity, making lawmakers nervous that corporations could flee Delaware and undercut a major source of revenue that funds one-third of Delaware’s operating budget. After two hours of debate Tuesday, Rep. Krista Griffith told colleagues that the bill was complex, but the reasons for voting for it were simple: “Protect Delaware’s economy, protect future opportunities for the people in our state. We have the best business court in the nation.” However, an opponent, Rep. Madinah Wilson-Anton — referring to the business courts as Delaware’s “golden goose” — warned that the changes being passed could end up “cooking that golden goose.” A legal challenge is widely expected after Meyer signs the bill. In hearings, lawmakers were warned by corporate lawyers and state officials that businesses were contemplating moving their legal home — a “Dexit,” as it has been dubbed — and that startups are being advised to incorporate elsewhere, such as competitors Nevada or Texas. Corporate leaders complained about a lack of predictability, clarity and fairness, lawmakers were told. Last year, Elon Musk slammed Delaware, saying “Never incorporate your company in the state of Delaware” and instead recommended Nevada or Texas as destinations after a Delaware judge invalidated his landmark compensation package from Tesla (TSLA) worth potentially more than $55 billion. Musk and Tesla are appealing in the state Supreme Court, and Musk’s companies — Tesla, SpaceX and Neuralink — all departed Delaware for Nevada or Texas. The fallout seemed to accelerate in recent weeks when the Wall Street Journal reported that Meta Platforms (META) was considering moving its incorporation to Texas. Meta — run by billionaire chairman and CEO Mark Zuckerberg — didn’t confirm the report. The bill has come under withering criticism that it will tilt the playing field decisively against investors, including pensioners and middle-class savers, and make it harder for them to hold billionaires and corporate insiders accountable for violating their fiduciary duty. In a statement, the Consumer Federation of America said Delaware’s lawmakers “clearly failed to protect investors with the passage of the Billionaire’s Bill.” Opponents argue that the bill overturns decades of court precedents. But its backers say it is only affecting newer precedents, modernizing the law, clarifying gray areas and maintaining balance between corporate officers and shareholders. The bill changes several provisions. One, it gives corporate officers and controlling stockholders more protections in certain conflict-of-interest cases in state courts when fighting shareholder lawsuits. Two, it limits the kind of documents that a company must produce in court cases and makes it harder for stockholders to get access to internal documents or communication that could prove time-consuming and expensive for a company to produce — not to mention, damaging to its case. Institutional investors warn that such a law may prompt them to push corporations that they own to incorporate elsewhere.

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3/24/2025

Opinion: RWE’s Brush with Activism Could Prove Short and Sweet

Financial Times (03/24/25) Thomas, Nathalie

Not all activist campaigns are equally highly charged, notes Lex columnist Nathalie Thomas. Some cage-rattling shareholders launch all-out political campaigns, demanding complete strategic overhauls. Others are defused with relatively minor concessions. "Markus Krebber, chief executive of German utility RWE (RWEG), has a chance to make sure his experience is of the latter type," suggests Thomas. Elliott Management, which has built a near 5% exposure to RWE, on Monday called on Krebber to “significantly increase and accelerate” the utility’s €1.5 billion share buyback to address its “persistent undervaluation.” RWE is one of several European energy companies engaged by the hedge fund; it also has a near 5% stake in BP Plc (BP). "In RWE’s case, this should not be a long drawn-out affair," says Thomas. "Much of what the market disliked about the 127-year-old German company is already on the way to being fixed." For example, the phase out of its legacy coal plants in Germany, planned for 2030, is one step in the right direction, according to Thomas. "These were getting in the way of RWE’s reinvention as a gas-and-renewables electricity generation business, and contributed to its persistent undervaluation." The company's enterprise value is currently 6.1 times forecast 2025 ebitda on FactSet estimates, a discount of roughly 30% compared to a basket of European renewables and utility peers. Another problem is that RWE was slower than many rivals to trim its capital expenditure plans after the tide turned against renewables. It took until last November to initiate a pullback on its target to invest €55 billion in green technologies globally between 2024 and 2030. "If one thing remains up for debate, then, it’s what RWE will do with its surplus cash," Thomas writes. "At its full-year results last week, it clarified that it would slash €10 billion from its investment plans between now and 2030 — roughly 25% of what it had intended to spend — but offered no clarity on when or whether those savings might come back to investors in the form of increased share buybacks." It might just be a question of timing. RWE has already committed €7 billion to capital expenditure this year. There will be more flexibility in how the group can allocate capital from next year, Krebber insisted. RWE also intends to sell some assets, so the eventual amount of cash it has to play with may change. "Once the idea of cash returns takes root in investors’ minds, though, it is hard to dislodge," Thomas concludes. "Krebber could do worse than step up RWE’s buyback plans, at least while he works out how to nip this particular activist campaign in the bud."

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3/19/2025

Delaware’s Status as Corporate Capital Might Be on the Line in a Fight over Shareholder Lawsuits

Associated Press (03/19/25) Levy, Marc

Delaware is trying to protect its status as the corporate capital of the world amid fallout from a judge’s rejection of billionaire Elon Musk’s Tesla (TSLA) compensation package, although critics say fast-tracked legislation will tilt the playing field against investors, including pensioners and middle-class savers. A Delaware House committee was expected to vote Wednesday on the bill, which is backed by Democratic Gov. Matt Meyer who says it’ll ensure the state remains the “premier home for U.S. and global businesses” to incorporate. Backers say it’ll modernize the law and maintain balance between corporate officers and shareholders in a state where the courts, for a century, have settled all sorts of business disputes as the legal home of more than 2 million corporate entities, including two-thirds of Fortune 500 companies. Critics — including institutional investors, pension funds and asset managers — say it’ll lower corporate governance standards, curb shareholder rights and, as a result, limit the ability to hold corporate officers accountable for decisions that violate their fiduciary duty. The bill passed the state Senate unanimously last week. A Delaware judge last year invalidated Musk’s compensation package from Tesla that was potentially worth more than $55 billion. Lawyers for shareholders had sued over the package that Tesla’s board of directors awarded Musk in 2018. Chancellor Kathaleen St. Jude McCormick said it was developed by directors who weren’t independent of Musk and approved by shareholders who had been given misleading and incomplete disclosures in a proxy statement. The ruling bumped Musk out of the top spot on Forbes’ list of wealthiest people, although he has since climbed back up. Musk and Tesla are appealing in the state Supreme Court. But Musk unloaded on Delaware, saying “Never incorporate your company in the state of Delaware” and instead recommended competitors Nevada or Texas as destinations. Now, lawmakers are being warned by corporate lawyers that their clients are considering heading to the exits — making a “Dexit,” as it’s been dubbed — and that startups are being advised to incorporate elsewhere. Must took his own advice, moving Tesla’s corporate listing to Texas after a shareholder vote and his companies SpaceX to Texas and Neuralink to Nevada. Backers of the bill say corporate unrest had been simmering the past couple years over various Delaware Supreme Court decisions in corporate conflict-of-interest cases and that Musk inflamed the discontent. The fallout seemed to accelerate in recent weeks when the Wall Street Journal reported that Meta Platforms (META) — the parent company of social media platforms Facebook, Instagram and WhatsApp — was considering moving its incorporation to Texas. Meta didn’t confirm the report. DropBox (DBX), the online file-sharing platform, moved its corporate listing to Nevada, and Bill Ackman, founder of Pershing Square Capital Management, a major hedge fund, said he’d leave Delaware, too.

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3/19/2025

Opinion: Shell Might be BP and UK Government’s White Knight

Reuters (03/19/25) Bousso, Ron

In this new era of energy nationalism, the British government will want to keep an oil and gas company like BP Plc (BP) based in the country, but it may ultimately need the help of another UK energy giant to do so. London-based BP is currently in dire straits, struggling to get back on its feet following a flawed attempt to veer away from fossil fuels to renewables. BP shares have sharply underperformed peers since 2020, and investors appear unconvinced by CEO Murray Auchincloss' fossil fuel-focused strategy reset, opens in late February, judging by the shares. Things got more difficult when Elliott Management built a 5% stake in BP in recent months. The fund is reportedly pushing for further changes, from a shake-up of the board to deeper asset sales and spending cuts. Meanwhile, rumors have swirled in the industry and across financial media about other companies that may seek to acquire BP as part of their growth strategies. The financial logic behind an acquisition by a U.S. rival or a Gulf national oil company is clear. For all of BP's current struggles, the company has a strong portfolio of oil and gas assets, including in the U.S. onshore shale basins and the Gulf of Mexico, Brazil, the North Sea and the Middle East. It also has a leading trading business and well known retail brand. It produced 2.36 million barrels of oil equivalent per day last year, generating $8.9 billion in net profit. This large global footprint makes BP a valuable asset for Britain. Western liberal democracies that do not have state-controlled energy or infrastructure champions must rely on close cooperation with private sector companies to further their national interests around the world. BP helps the UK do just that. This soft power was recently on display when British Prime Minister Keir Starmer highlighted, opens BP's agreement with Iraq to invest billions in new oil, gas, power and renewables projects in the country following a meeting with his Iraqi counterpart Mohammed al-Sudani in London. The UK government will be loath to lose such influence by letting BP be snapped up by a foreign rival. Moreover, energy security is now, perhaps more than ever, a key element of national security. Russia's invasion of Ukraine in 2022 led to a surge in European power prices and disrupted global energy flows, putting a harsh spotlight on the importance of having access to abundant sources of energy and large domestic operators. European governments have since slowed their energy transition plans and are reconsidering the importance of domestic oil and gas production. The need for a strong national energy policy is especially important following Donald Trump’s return to the White House. His administration’s transactional, strong-arm approach to diplomacy has involved pressuring countries to make large-scale investments, such as oil and gas projects. Trump himself took a swipe at Britain’s energy policy, urging the UK to “open up” the North Sea to oil and gas exploration and scrap wind farms. And BP is a major investor in the United States. It directed around 40% of its $16.3 billion capital expenditure in 2024 to the U.S., where it produces around a third of its oil and gas, has two refineries and is a major buyer of U.S. liquefied natural gas. The UK won’t want to lose this leverage. While the British government will not be able to prevent other companies from putting forward bids for BP, it does have the power to block any such deal on energy security grounds under the National Security Investment Act. But it will be hard for the government to fight market forces for long if BP remains in a weak financial position. The obvious solution would be to encourage Shell (SHEL), the other British energy giant which moved its headquarters from The Hague to London in 2022, to step in and acquire BP. Such a combination could enable the UK to retain many of the industrial, financial and national security benefits BP brings. On paper, Shell, with a market cap of around $210 billion, should have no problems acquiring its smaller $90 billion rival. A combination would take years, however, and is bound to face tough anti-trust hurdles in many countries, first and foremost in the United States, where both companies have a large footprint. Shell would probably need to sell some assets to avoid overlaps between the two businesses. There’s just one problem: Shell likely has little interest in such a deal. A mega-merger of this scale does not align with the ethos of CEO Wael Sawan, who is focused on cutting costs and narrowing the business’s focus to liquefied natural gas and trading. But in this new era of growing nationalism and industrial policy a call from 10 Downing Street might be coming soon.

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3/18/2025

Goldman, McKinsey See Quest for European Champions Driving M&A

Bloomberg (03/18/25) Nair, Dinesh

Europe could emerge as a rare bright spot in global M&A, as geopolitical tensions with the US and trade tariffs propel companies in the continent to consolidate, according to some of the region’s top advisers. Market volatility induced by White House rhetoric has dampened optimism among bankers that were expecting a banner 2025, and the volume of global mergers and acquisitions has fallen 8% this year, according to data compiled by Bloomberg. However, there are reasons for less pessimism in Europe, senior executives at Goldman Sachs Group Inc. and consulting firm McKinsey & Co., said on the sidelines of their M&A conference in London last week. “This could be the moment for Europe to pick up momentum,” Andre Kelleners, Goldman’s co-head of investment banking in Europe, the Middle East and Africa, said in an interview. “The implications of what is happening geopolitically, with the U.S. retrenching, could have a positive impact for the region.” Global M&A volume could rise another 10% to 15% this year, mostly driven by corporate activity, with a significant uptick likely in the later part of the year, Woehrn said. Companies are still keen to grow through acquisitions in the longer term, said Michael Birshan, who co-leads McKinsey’s strategy and corporate finance business globally. Around two-thirds of the senior executives polled by the consulting firm expects to do more M&A this year than in 2024, he said. “The mood is still optimistic to dealmaking,” Birshan said. Some of the factors that were hindering dealmaking — such as rising interest rates — have improved in recent months, according to Mieke Van Oostende, who co-leads McKinsey’s M&A practice globally. “Unpredictability and the fact that in 48 hours we can go from one extreme to another and vice versa does not help activity,” she said. “Yet, history tells us this pause will hopefully not last for long. Uncertainty in M&A has become the new normal.” Corporate breakups are also driving one of the biggest M&A trends in globally, a trend that’s been exacerbated by activist investors. Last year, there were 39 separation announcements globally, a 30% increase over the five-year average, according to a presentation to clients by Goldman Sachs at the London conference. More than half of the separations happened outside the US, with Europe leading the way. Activists are deploying billions of dollars into single campaigns, said Avinash Mehrotra, global head of activism and co-head of Americas M&A at Goldman Sachs. An increased proliferation of newly launched funds, which are mostly spinoffs from more established players, is further fueling activity, he added. Elliott Investment Management in the past year has launched campaigns at major companies such as BP Plc (BP) and Honeywell International Inc. (HON). The latter agreed to split into separate publicly traded companies following pressure from the activist. BP has pledged to divest its $10 billion Castrol business and shrink investments in renewables but Elliott has said that strategy fell short of its expectations. “Already this year, activists are becoming more aggressive,” Mehrotra said. “These funds are not going to easily retreat from campaigns.”

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3/16/2025

Proxy Season Could See More Activism Aimed at Consumer Companies

MarketWatch (03/16/25) Escobar, Sabrina

Consumer companies are expected to continue to receive heavy engagement from activist investors this proxy season, according to a report from Barclays. The past three years have been the busiest on record for shareholder activism, with an average of 236 such campaigns a year versus a prior three-year high of 223 campaigns from 2017 to 2019, Barclays reports. Consumer-facing companies like Costco Wholesale and Macy's are ripe for activism for reasons ranging from changing consumer behavior in the wake of the pandemic to companies' widespread name recognition that makes them inviting targets for groups looking to garner attention. Much of the action in the past three years was centered on the consumer-discretionary sector. Changing consumer behavior in the wake of the Covid-19 pandemic has hurt many companies' performance, sharpening the difference between the sector's winners and losers. The companies' widespread name recognition among consumers also makes them inviting targets for groups looking to garner attention, either for themselves or their causes. The coming proxy season could force engaged companies to navigate increased financial pressure or enhanced reputational risk. That could mean more volatility in their shares, but also the potential for gains if positive changes are imposed or otherwise take hold. Institutional activists such as hedge funds and other investment firms are often drawn to companies in sectors in flux or prone to disruption, says Christopher Couvelier, a managing director in Lazard's Capital Markets Advisory group, focusing on activism preparedness and defense. That describes the consumer-discretionary space in the past five years. The pandemic ushered in new consumption patterns, such as an increased preference for online shopping and mobile ordering at restaurants. It also created challenges, including staffing shortages, fluctuations in consumer demand, and supply-chain snafus that have yet to be untangled. “All of these have put a lot of pressure on these businesses, and their performance is going to come under the scrutiny of activists,” says Robert Marese, president of MacKenzie Partners, a proxy campaign advisor. Other factors could also lead to stepped-up activist activity this year and next. For one, Wall Street hopes the Trump administration will ease regulations on mergers and acquisitions sometime later this year, after several years of government hostility to deals. That could give activists renewed confidence to call for more mergers, sales, and spin offs, particularly if private-equity firms come back to the table. If conditions improve, Couvelier expects to see more activists approach companies after having discussed a buyout with financial sponsors. He also expects more to team up with private-equity investors on transactions, much as the activist firm Arkhouse Management and asset manager Brigade Capital Management tried to take Macy's (M) private last year. “The return of financial sponsors…could be a game-changer,” Couvelier says. “They are sitting on massive heaps of dry powder and we know they've maintained their dialogue with activists even while they've been sitting on the sidelines.”

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3/13/2025

Irenic Capital Quickly Gains Ground

Institutional Investor (03/13/25) Taub, Stephen

Since Adam Katz formed Irenic Capital Management with Andy Dodge in 2021, the firm has engaged in a flurry of public activist campaigns in just the past year or so. Irenic has yet to earn the kind of name recognition enjoyed by other activists such as Nelson Peltz of Trian Fund Management, Jeffrey Smith of Starboard Value, and Paul Singer of Elliott Management. But it is starting to be taken seriously on both sides of the Atlantic. Investors have certainly noticed. Since the firm launched with $335 million, assets under management have swelled to $1.4 billion, according to an investor. This includes about a half-dozen co-investment vehicles for investors to participate in specific deals. A big chunk of these assets is new capital, and not attributable to a rise in performance. Irenic’s hedge fund, launched in August 2022, was up 14% in 2023, its first full year, and 19% in 2024, the investor says. In the first two months of this year, it rose less than 2%, better than the broad market. The fund has little correlation to the overall market, with a beta of just 0.2, or a 20% overlap with the S&P 500’s movement. Katz graduated from Harvard in 2007 and co-launched a woman’s e-commerce company, FabFitFun, that was subsequently backed by Kleiner Perkins, NEA, and Upfront Ventures. He returned to Harvard and earned an MBA from the business school and a JD from the law school while continuing to run the business through 2011. After passing the bar, Katz joined Elliott Management’s situational investing group, a catchall group that included everything from special situations to sovereign credit and private equity, as well as activism and distressed. In 2023, he was named one of ten II Hedge Fund Rising Stars. Irenic had its first foray into activism just two months after the 2022 launch, when it opposed the Murdoch family and News Corp’s (NWSA) reported plan to recombine with Fox Corp., which was ultimately scrapped. More recently, Irenic has built a stake of slightly less than 30% of U.K.-based FD Technologies (FDP). In the U.K., if investors own 30% or more of a company, they are required to make a tender offer for the rest of the shares. But a year ago, the company split into three different businesses and recently sold its consulting business. It plans to remain just a software company. Also in 2024, Irenic nominated Katz and another individual to the board of directors of the Barnes Group, which is in the industrial and aerospace businesses. Two months later, the company named Katz to the board and entered into a cooperation agreement with the hedge fund firm. Later in the year, Apollo Funds agreed to purchase Barnes in an all-cash transaction valued at $47.50 per share, a deal that was completed in January 2025. On the heels of the third-quarter 2023 earnings reports, with the fund’s cost basis in the mid-20s, Irenic had bought share as low as $19.20 apiece. In another activist engagement, it was reported early last year that Irenic had built a stake of nearly 5% in Forward Air (FWRD) and sent a letter to directors urging it to engage in a strategic review, including possibly selling the company. Forward Air later said it had hired two investment banks, and in January 2025 its board initiated a strategic review, which potentially includes selling the company or entering a merger agreement, according to a company press release.

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3/12/2025

Competitors are Circling Southwest After the Airline Announced it's Going to Start Charging for Checked Bags

Business Insider (03/12/25) Goel, Shubhangi

Southwest Airlines (LUV) is getting rid of its hallmark free baggage policy, and competitors say it's a good thing for them. The CEOs of United Airlines (UAL) and Delta Air Lines (DAL) said on Tuesday that Southwest's change could lead some price-sensitive customers to switch airlines. United's Scott Kirby said that the Texas-based carrier's elimination of its free bags perk was like "slaying the sacred cow." "It will be a really big deal for Southwest," Kirby said at the JPMorgan industrials conference. "It would be good for everyone else." Delta's Ed Bastian made similar comments at the conference. "Clearly, there are some customers who chose them because of that, and now those customers are up for grabs," Bastian said. Airlines compete closely for US domestic market share. Delta had 17.7% of the share, Southwest had 17.3%, and United had 16% of the domestic market share for the year that ended in November 2024, according to the Bureau of Transportation Statistics. Ancillary fees, which are extra charges for non-essential add-ons like seat selection, in-flight meals, and baggage, have become an increasingly important revenue source. United reported it made $4.5 billion in ancillary fees in 2024. On Tuesday, Southwest announced it was changing its "bags fly free" policy to only apply to select premium members from May 28. It said that customers who don't qualify will pay for their first and second checked bags. In July, Southwest's CEO Bob Jordan said that after fare and schedule, checked bags were the "number one issue in terms of why customers choose Southwest" and he reiterated the stance on checked baggage again in September. At Tuesday's JPMorgan conference, he said the change would spur Southwest credit card enrollments and add revenue. "We carry nearly two times the bags as compared to the competition, which is costly on many fronts," Jordan said. The move is part of Southwest's larger business overhaul as the company faces investor pressure after a series of lackluster earnings. Passenger volumes are below pre-pandemic levels despite strong travel demand. Southwest's stock is down 26% in the last five years, while United is up over 80%. In July, Elliott Investment Management, which built up an 11% stake in the company, said the airline's decades-old strategies weren't working. The investor called for an overhaul of management and the board of directors. In October, Southwest added six directors from outside the company as part of a deal with Elliott. In July, Southwest abandoned its other famous policy — free seating — and replaced it with basic economy fares and premium seats available for purchase. The company also laid off 15%, or about 1,750, of its corporate employees last month, breaking a decadeslong reputation of not having mass layoffs. Southwest's stock is down 9% so far this year.

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