AirTran isn't done with Midwest yet

Apparently AirTran isn't quite yet ready to give up on acquisition target Midwest Air, even though two days ago Midwest announced that it would go ahead with a deal led by TPG Capital. While the TPG offer was $16 a share, AirTran's latest offer, of $445 million in cash and stock, is valued at $16.25 a share. (Its old offer was $15.75 a share.) Midwest's board said earlier today that they would take the "revised offer under consideration".
Even though Midwest was expected to strike a formal agreement with the TPG-led group on Wednesday, AirTran might get its way in the end. Over half of Midwest shareholders were for the original AirTran deal, and Pequot Capital Management, the largest shareholder in Midwest, said today that they had "significant concerns" about a deal with TPG. Pequot's managing director said that in the long term, a deal with AirTran might be more valuable because the two airlines would be able to eliminate overlaps in their route networks - a move that would save a lot of money.

Midwest CEO to employees about TPG offer

This was posted online, and I thought I'd re-post it here on The Airline Blog:

To: All Midwest and Skyway Airlines Employees
Date: August 12, 2007
From: Timothy E. Hoeksema
Subject: Board of Directors Update #4

The Midwest Air Group Board of Directors today said that it has unanimously determined to pursue an all-cash offer from TPG Capital, L.P. on behalf of an affiliate of TPG and one or more partners to acquire all of the outstanding shares of Midwest for $16.00 per share.

The board took this action after receiving a letter from AirTran Holdings that stated the airline was making its best and final offer to acquire all of the outstanding shares of Midwest common stock at $15.75 per share, valued at Friday's closing price of AirTran's common stock. In reaching its determination, our board concluded that the TPG offer presented greater value and certainty for Midwest shareholders than the AirTran offer.

Under the terms of the offer from TPG, the private equity investor indicated that its acquisition "would permit the Company to continue its rich legacy as a leading provider of customer oriented quality air service." The board expects that Midwest and TPG will execute a definitive merger agreement no later than August 15, 2007.

TPG is one of the largest private equity investors in the world and the most experienced in the airline sector. It has invested in Continental Airlines, America West Airlines, Ryanair, Hotwire and Sabre with the goal of helping management teams build long-term value for stakeholders. TPG's offer to Midwest is set forth in a letter that was received by the Midwest board on August 12. The letter is attached at the end of this memo for you to read.

This announcement is sure to result in intense media coverage. I will again remind you that news coverage is often highly speculative. Be assured that we will inform you of any developments as there is news to report.

Northwest-backed group offers takeover bid for Midwest

photo: "Midwest N905ME", by Drewski2112

A group of investors, led by TPG Capital and which includes Northwest Airlines, said that it would buy Milwaukee-based Midwest Air for $400 million. The TPG-led bid was announced right after AirTran, which coveted a Milwaukee hub, said that it would no longer pursue its hostile takeover of Midwest. AirTran's final offer of $15.75 a share was less than TPG's $16.

Beyond the per-share figures, though, there might be another reason that Midwest might go for the TPG bid. The airline code-shares with Northwest, which is a key player at Milwaukee. Northwest didn't want another airline to move into the market, so Midwest's rejection of the AirTran bid is good news for them. However, Northwest said in a statement that they would not take part in managing Midwest (if the TPG bid is successful, of course).

The deal still needs to clear the anti-trust regulators, and AirTran CEO Joe Leonard has voiced, unsurprisingly, pessimistic views about this, saying that the "Midwest board has chosen a path that will benefit current senior management by selling out to a private equity firm and a so-called 'passive' investor whose involvement will surely raise antitrust concerns, casting doubt for shareholders on whether a transaction can, in fact, close." But a Midwest spokesperson was more upbeat, saying that the airline expected the deal to go through.

Midwest still resists AirTran

AirTran Airways, which has been pushing a hostile takeover of Midwest Airlines, has extended its offer until June 8. AirTran announced the takeover bid back in December, and is seeking to buy Midwest for $389 million in cash and stock. Midwest has staunchly refused to give in; a company spokeswoman said that "It doesn't change anything. The board continues to remain steadfast in its view that the offer is inadequate." The board last month unanimously rejected a $15 per share offer.

But that might not be enough. AirTran announced that Midwest shareholders have tendered almost 14 million shares of Midwest to an AirTran company. That's more than the 56.6% of Midwest's outstanding shares. And even though the company spokeswoman said that the board is still rejecting the idea of a takeover, AirTran now has enough shares to nominate three members to Midwest's board, which has nine members.

Midwest has been seeking to 'go it alone' and has its own plan for independent growth, which involves new routes and more airplanes. It has even launched a website, Savethecookie.com, which plays off of the airline's reputation for serving freshly-baked cookies in flight. Of course, the companies are vastly different in terms of company culture (and, some would argue, in terms of service levels). If the airlines were to merge, I don't think it would be the smoothest of mergers. We'll see if Midwest is successful at convincing the public to stay independent, and if AirTran is successful at convincing the shareholders to go ahead with the takeover.