Hedge Fund Likes New AirTran Offer for Midwest

AirTran Airways' sweetened offer for Midwest Airlines should spark serious discussions between the two carriers, a key shareholder said Monday.

"We're very encouraged," said Richard Hurowitz, chief executive at Octavian Advisors, a New York hedge fund that owns more than 5 percent of Midwest. "It's time for both sides to get together and talk."

AirTran raised its tender offer 13 percent Monday to $15 a share, or $389 million, from $13.25 a share, or $345 million. AirTran launched a hostile bid for Midwest in December, but the two airlines have held no formal negotiations or detailed prepurchase financial reviews.

"We're not going to go higher than this. This is our last number," AirTran Chairman and Chief Executive Joe Leonard told The Associated Press. "They're going to have to make a choice --- do they take $15 a share or hope the stock doesn't get back down to $6 or $7, where it was before we came in."

Midwest will review AirTran's latest bid and make a recommendation to shareholders on April 16, said Carol Skornicka, general counsel.

Midwest had labeled previous AirTran offers as "inadequate" and "opportunistic," and Skornicka said the Milwaukee-based carrier will use the "exact same process" to consider AirTran's latest bid.

"Our board will be evaluating the offer and make a recommendation within 10 business days," she said.

Skornicka also gave an account of what she termed the "weird" meeting last fall in which AirTran made an initial, private offer to buy Midwest.

The chief executives of the two airlines held a one-hour meeting in October at which the subject of a buyout never came up, according to Skornicka. At the end of the meeting, Leonard left a sealed envelope for Tim Hoeksema of Midwest containing a buyout offer.

Midwest rejected that deal, leading AirTran to begin its public, hostile effort in December.

"It was a very weird meeting, very unusual," Skornicka said of the October talks. "They talked for an hour but never discussed a transaction."

In addition to its tender offer to shareholders, AirTran also is supporting a slate of three board members nominated to Midwest's board. The carrier's annual meeting is May 23.

AirTran is seeking a second hub outside Atlanta's Hartsfield-Jackson International Airport, where two-thirds of its flights originate. The company is taking delivery of a steady stream of Boeing 737s and has long sought a hub near Chicago where the 150-seat planes can reach both coasts.

Midwest, which has long been known for all business-class seating and fresh-baked chocolate chip cookies, is particularly desirable because it, like AirTran, flies Boeing 717s and the two carriers have few overlapping routes. But Midwest wants to remain independent and says it can grow more profitably on its own.

Midwest is adding flights from hubs in Milwaukee and Kansas City and inked a deal with SkyWest to expand regional flights. Leonard has called those efforts "schizophrenic" and contends the merged company would add more flights and jobs than Midwest alone.

AirTran spokesman Tad Hutcheson said Monday he hopes the higher offer gets Midwest's attention.

"AirTran made this increased offer to Midwest in the hopes of effecting a transaction with them," he said.

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