TPG to acquire Midwest

Airline agrees to $17-a-share deal; AirTran accept's board's decision

Aug. 17--TPG Capital/Northwest Airlines Corp. won, AirTran Holdings Inc. lost and Midwest Airlines will keep its name, identity and independent status, after reaching a sale agreement with TPG Capital Thursday night.

TPG Capital, with financial backing from Northwest, will pay $17 a share for Midwest Air Group Inc., operator of Midwest Airlines, known for its baked-on-board chocolate chip cookies and wide seats, as well as regional carrier Midwest Connect.

The $450 million sale is subject to shareholder and regulatory approval, and is expected to be completed by the end of the year, Midwest Air Chairman and Chief Executive Officer Timothy Hoeksema said.

"The cookies stay," Hoeksema told reporters, who gathered at a hastily called late night news conference at the company's Oak Creek headquarters.

TPG Capital, an investment firm based in Fort Worth, Texas, raised its offer to $17 a share after rival AirTran this week submitted an offer of $16.25 a share. That AirTran offer, in turn, had trumped TPG Capital's $16-a-share offer that Midwest Air announced Sunday it would pursue.

That pursuit is now over, with the sale agreement signed, Hoeksema said. And while AirTran could still make another offer prior to the sale being finalized, the Orlando, Fla., airline indicated that wouldn't be happening.

"We accept the Midwest board's decision," AirTran Chairman and CEO Joe Leonard said.

"We sought to acquire Midwest because we believe joining the two airlines would have created a unique, efficient, truly national low-cost carrier with tremendous benefits for shareholders, communities and employees," Leonard said in a statement. "We hoped the Midwest board would come to share our vision and reach a consensual agreement -- just as a majority of Midwest shareholders recognized the value in our strategic plan."

TPG Capital, along with sweetening its bid, had the advantage of presenting an all-cash offer, Hoeksema said.

Weighing pros and cons

AirTran's final offer, which amounted to $16.27 a share, was a mix of cash and stock. The offer also included conditions to limit the fluctuations in the AirTran offer that were tied to the daily changes in the closing price of AirTran stock, Hoeksema said. But, AirTran's offer price could still fluctuate over time depending on market conditions, he said.

Also, TPG Capital's offer did not come with a financing contingency, Hoeksema said. The AirTran offer had such a contingency, which was a concern, he said.

Hoeksema called the sale agreement to TPG/Northwest a "milestone" for Midwest Air, which was launched in 1984 and has built a reputation for offering a high level of customer service.

TPG Capital has endorsed Midwest Air's strategic plan, which focuses on what Hoeksema calls sustainable, steady growth -- much of it through an expansion of Midwest Connect. Hoeksema's strategy also calls for replacing some two-across seats on Midwest Airlines with narrower seats to get more revenue from each flight.

TPG Capital, which has made investments in other airlines, is "very happy" with the quality of Midwest Airlines and Midwest Connect, the enthusiasm of the airlines' employees and the quality of the management team, Hoeksema said.

Hoeksema is expected to remain at the helm of Midwest Air. Under AirTran's ownership, he would have lost his job.

Thursday's announcement, which came after 11 p.m., capped a wild week in which first TPG Capital, and then AirTran, seemed to have the upper hand.

It began Sunday night, when Midwest Air's board voted to pursue a $16 a share offer from TPG Capital/Northwest. The board spurned AirTran's $15.75 offer, saying it preferred not only the higher amount bid by TPG Capital but also the "certainty" of an all cash offer.

But, less than 48 hours after it bitterly conceded defeat, AirTran revived and sweetened its offer. On Tuesday, after trading closed, AirTran announced it was offering $16.25 a share.

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