Williamsburg, Va. - AirTran Holdings Inc.'s hostile takeover bid for Midwest Air Group Inc. continues to gain momentum, but it could still take months for AirTran to seal the deal, company executives said Wednesday.
"It's going to take some time," said Stan Gadek, AirTran chief financial officer, before the start of AirTran's annual shareholders meeting.
Both Gadek and Joe Leonard, chairman and chief executive officer, said it would likely be months before AirTran is able to take control of Oak Creek-based Midwest Air, which operates Midwest Airlines and Midwest Connect.
Gadek said he expects Midwest Air shareholders will elect three board candidates, nominated by AirTran, at the Midwest Air annual meeting on June 14. If that happens, the AirTran slate will make up one-third of the Midwest Air board.
"They're going to be changing the dialogue of the company," Gadek said about the three nominees, Jeffrey Erickson, Charles Kalmbach and John Albertine.
Gadek said Erickson, Kalmbach and Albertine would offer "a different perspective on the rights of shareholders," and they would challenge the Midwest Air board's view on that company's value.
AirTran announced last week that nearly 57% of Midwest Air's shares have been tendered so far. That doesn't mean AirTran has acquired the shares, but rather, those shares have been pledged to AirTran for its attempted takeover.
Midwest Air has characterized the results as "a straw poll" and not a binding referendum on the company's future. The Midwest Air board has rejected AirTran's offer as being inadequate and failing to take into account the company's long-term value.
Midwest Air last week announced an agreement with Northwest Airlines to sell space on each other's planes, citing it as an example of the company's long-term growth plan.
But Gadek said he believes that "code share" agreement will add little new revenue to Midwest, and he said Northwest likely will be the bigger winner in the deal. He said the agreement mostly will affect passengers flying internationally, who may fly Midwest from Milwaukee to Northwest hubs, then connect with Northwest flights to overseas destinations.
Plans for growth
Midwest Air's growth plan is centered on gradual increases in departures from both Milwaukee and Kansas City, Mo.
By contrast, AirTran wants to buy Midwest Air so it can greatly expand it. Leonard said that strategy is based on reducing the number of two-across Midwest Airlines seats and replacing them with the more traditional, narrower three-across seats. That, combined with lower fares, would allow AirTran to draw more passengers and increase the number of departures from Milwaukee, Leonard said.
Speaking to shareholders, Leonard said the combination of AirTran and Midwest would create a stronger airline. He cited figures documenting AirTran's low costs, continued revenue growth and consistent profitability. Leonard also talked about the lack of overlap in routes between Midwest and AirTran, which is based in Orlando and has its largest hub in Atlanta.
Currently, Midwest Air has 77% of its passenger capacity based in Milwaukee, and AirTran has 68% of its capacity based in Atlanta, Leonard said. Those percentages would drop to 25% and 45%, respectively, if the acquisition occurs, he said.
"You build a network that's very defensible, very diverse and something you can really build on," Leonard said.
Terms of an offer
Leonard also said he expects the percentage of shares tendered by Midwest Air owners to increase by the offer deadline of June 8. AirTran has extended that deadline several times.
The AirTran offer requires the Midwest Air board to suspend the company's "poison pill" protection against hostile takeover attempts. Suspending that provision would allow AirTran and Midwest to negotiate a sale, Gadek said.
"They have their view of what the company is worth. We have our view," Gadek said before the meeting. "We just need to sit down and talk about it."
He also dismissed the notion that Midwest Air shouldn't negotiate because it views the AirTran offer as inadequate. Leonard has said the current offer is the final offer, but Gadek hinted that there might be some flexibility in that position.
"Price should not be a prerequisite to negotiations," Gadek said. "Price should be an outcome of negotiations."
Gadek and Leonard said Midwest Air's directors may be considering the threat of a shareholders lawsuit if they continue to spurn negotiations with AirTran. "They probably have thought about the downside of sitting around with their arms crossed and telling the shareholders to buzz off," Leonard said.
Carol Skornicka, Midwest's senior vice president of corporate affairs, said Wednesday that she is confident the board is meeting its obligations to shareholders.
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