AirTran to Midwest: We’re Baaack

MILWAUKEE (AP) – Midwest Air Group Inc. thought it had successfully spurned AirTran Holdings Inc.'s takeover bids and would be flying in smooth skies once again. After months of wrangling, Midwest was ready to enter into a definitive agreement Wednesday to accept private investment firm TPG Capital's $400 million cash bid.

But more turbulence came late Tuesday when AirTran revived its hostile takeover effort, increasing its bid to $16.25 per share in a cash and stock deal worth about $445 million.

AirTran has been courting the operator of regional Midwest Airlines for two years. But it had abandoned its hostile takeover effort Sunday night after upping its bid to about $15.75 per share in cash and stock.

AirTran renewed its bid because the deal is important to its goal of becoming a low-cost national carrier, and Midwest shareholders are saying they want the deal too, said Bob Fornaro, AirTran's president and chief operating officer.

“We've got a very strong foundation. This makes it better, so why not pursue it,” Fornaro said.

More than half of Midwest shareholders had agreed to tender their shares to AirTran if the deal were approved.

Orlando, Fla.-based AirTran is now offering to give Midwest shareholders $10 in cash and 0.6056 of a share of AirTran stock for each Midwest share. Based on AirTran's closing price Monday, the deal was worth $16.25 a share, or $445 million.

With the increased offer, it's unclear if Midwest will finalize TPG's $16-per-share deal Wednesday as it had hoped. Midwest has said selling to TPG would allow Midwest to keep its name and heritage, while AirTran plans to incorporate Midwest under its name.

Midwest, based in Milwaukee, said in a statement it was taking the new offer under consideration. A spokesman at TPG Capital declined to comment.

Fornaro said AirTran also was concerned about Northwest Airlines Corp., which is a passive partner in the TPG deal.

Northwest, he said, wants to buy Midwest simply because it doesn't want AirTran to grow its business at Milwaukee's Mitchell International Airport. Midwest is the largest operator out of the airport, carrying about half the passengers leaving last year. Northwest was the second largest, with about 18 percent.

“They don't want AirTran in there,” Fornaro said. “They don't care if Midwest survives.”

It was not clear how big a stake Northwest has in the deal. The Eagan, Minn.-based airline has said it would not participate in Midwest's management should the TPG deal go through. It was not clear whether any airline operations would be combined.

Northwest spokesman Darren Shannon said the company had no immediate comment on AirTran's new offer.

Darryl Jenkins, an independent airline industry expert based in Marshall, Va., said an AirTran-Midwest duo would pose a formidable opponent to large low-cost carriers like Southwest Airlines Co.

“It would be awfully nice, there's no doubt about that,” he said.

AirTran's new bid came after the markets closed Tuesday. Midwest shares fell 4 cents to close at $13.96 but gained almost 7 percent to $14.90 in after-hours trading. Shares of AirTran rose 3 cents to close at $10.35 and lost 2 cents after hours.

Shares of Northwest closed down $1.20, or 6.6 percent, to $17.10, and gained 9 cents after hours.

Midwest had pledged for months to remain independent as AirTran pursued a very public hostile takeover. AirTran raised its offer several times from its initial bid of $78 million in June 2005 and was rejected each time.

But under shareholder pressure, Midwest's board set up a committee last month to look into a sale. The company eventually announced it had four suitors, though the only one it acknowledged publicly was AirTran.

Midwest's stock price has risen during AirTran's pursuit, but its earnings have tumbled. In the second-quarter, Midwest's profit fell 45 percent, hurt by lower fares and higher fuel costs.

Midwest has said twice this year that it wouldn't meet its full-year earnings expectations.