AirTran's takeover bid endorsed

AirTran Airways' hostile bid for Midwest Airlines got a lift Monday when an influential corporate governance watchdog group backed AirTran's slate of candidates for election to Midwest's board.

Institutional Shareholder Services recommended that Midwest shareholders vote for three AirTran candidates seeking election to Midwest's board of directors June 14.

"Three dissident nominees on Midwest's board may help a more objective evaluation of the company's strategic alternatives," ISS said. "While we recognize that the dissident nominees may represent the platform with a bias towards a merger ... this concern is outweighed by the need to exhibit a willingness to explore strategic alternatives that would increase shareholder value in light of the market events surrounding the AirTran offer."

AirTran has been seeking to buy Midwest since 2005 and launched a hostile takeover bid in December. AirTran has twice increased its offer, to $389 million or $15 a share in cash and stock. More than 56 percent of Midwest shareholders backed AirTran's tender offer on May 16, but Wisconsin law gives Midwest powerful tools to block hostile takeovers.

AirTran is seeking a hub outside Atlanta, where two-thirds of its flights now originate. Midwest's Milwaukee hub is within easy driving distance of Chicago's northern suburbs, it has few overlapping routes, and it operates Boeing 717s --- the same planes that make up the backbone of AirTran's fleet.

Midwest has rejected AirTran's overtures, and executives say their stand-alone growth plan will provide better returns for shareholders.

ISS faulted Midwest for having almost no turnover in its board. Directors at the Milwaukee-based carrier have served an average of 14 years, and the company's chairman and CEO, Tim Hoeksema, has been in the top job 23 years.

Hoeksema criticized the ISS report Monday and said he "strongly disagrees" with its conclusions.

"The Midwest board of directors is fully committed to creating long-term value for Midwest shareholders," he said, "while AirTran's primary goal is to engage in an opportunistic transaction."

ISS also took issue with Midwest for not disclosing stock ownership guidelines for outside directors or executives; maintaining "poison pill" anti-takeover measures; and "classifying" its board in staggered terms.

Midwest officers and directors own about 7.3 percent of Midwest's shares. ISS said about 60 percent of the other shareholders back AirTran.

In other developments, AirTran reported its May passenger traffic grew 22 percent on a capacity increase of 21 percent. The results reverse a trend in recent months in which AirTran's capacity grew faster than ridership.



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