AirTran Airways re-entered the fight to take over Midwest Airlines with a $445 million offer as its president said a competing deal by a private equity firm and rival Northwest Airlines has "a lot of holes."
Shortly after AirTran announced its $16.25 cash-and-stock bid late Tuesday afternoon, Midwest's board said it will "take AirTran's revised offer under consideration."
AirTran's quick turnaround apparently puts Midwest back in play, even as the Milwaukee-based airline's board had been expected to put the finishing touches on the Northwest camp's $16-per-share cash offer by the close of business today.
AirTran's sweetened offer is for $10 in cash plus 0.6056 of an AirTran share.
Officials at Northwest declined to comment. Midwest officials could not immediately be reached.
Midwest's board, which has resisted AirTran's buyout attempts for months, unanimously accepted a tentative agreement with TPG Capital and Northwest late Sunday after rejecting AirTran's previous $15.75-per-share offer, which AirTran had called its "best and final offer."
But AirTran President Bob Fornaro said AirTran's management had a change of heart after hearing from investors who were skeptical of the other deal, and seeing that Midwest's stock hasn't risen in the past two days since it was announced.
He said Midwest's rival would-be owners would have to raise fares and cut jobs at the carrier to make the $424 million deal pay.
"People don't buy it," said Fornaro, who claims that Northwest's involvement in Midwest's buyout will likely reduce competition and be challenged by federal antitrust regulators.
Northwest counters that AirTran's takeover of Midwest would reduce competition in Milwaukee, where the three airlines compete. Midwest is the largest carrier in Milwaukee.
Northwest argues that it will avoid any competitive concerns by structuring the deal so that it exerts no control over Midwest's management, which would remain in place.
At least one big investor was skeptical of TPG's and Northwest's buyout plan, however.
Pequot Capital Management, a hedge fund that described itself as Midwest's largest shareholder, sent a letter to the airline's board protesting its decision to accept TPG Capital's and Northwest's offer.
"We fail to see how TPG and Northwest will be able to match the job creation and growth opportunities promised by AirTran for the benefit of Midwest's employees, suppliers, customers and communities," said the Westport, Conn., firm, which owns 8.8 percent of Midwest. The company said AirTran's offer has "significantly more upside" because of cost savings and other benefits promised by the merger of the two carriers.
Midwest's shares fell 4 cents Tuesday to $13.96 amid heavy losses on Wall Street. But the shares rose $1.07 in after-hours trading when news of AirTran's new offer emerged.
At the market close Tuesday, AirTran's shares were up 3 cents to $10.35. Northwest's shares fell $1.20 to $17.10.
Orlando-based AirTran has been doggedly pursuing Midwest since 2005 as a way to broaden growth beyond its Atlanta hub, where it is the second-largest carrier, after Delta Air Lines. The carrier says the proposed merger would garner more than $60 million in annual cost savings and new revenues by combining airlines with similar aircraft types and little overlap in their networks.
Follows failed effort to acquire Midwest
Midwest said late Thursday that TPG will pay $17 per share, beating out AirTran Holdings Inc.'s offer that had been raised several times.
Hostile offer raised to $445 million.
Airline agrees to $17-a-share deal; AirTran accept's board's decision