Shareholder Suit Wants Midwest's 'Poison Pill' Suspended

A shareholder of Midwest Air Group Inc. is seeking a judge's order that would suspend the company's "poison pill" provision, paving the way for AirTran Holdings Inc. or any other bidder to acquire the airline.

The lawsuit, filed by shareholder Linda Garrett of Lufkin, Texas, in Milwaukee County Circuit Court, is seeking class-action status, Gregory Nespole, an attorney for Garrett, said Wednesday.

The suit wants a judge to order Midwest Air to drop the poison pill provision, said Nespole, of the New York firm of Wolf Haldenstein Adler Freeman & Herz.

The company's poison pill allows it to issue more shares if one stockholder acquires at least 15% of the company. That makes it very difficult to mount a hostile takeover of Midwest Air.

Carol Skornicka, Midwest Air's senior vice president of corporate affairs, declined to comment on the lawsuit.

AirTran last week sweetened its offer for Oak Creek-based Midwest Air, corporate parent of Midwest Airlines and the Midwest Connect regional carrier.

In raising its offer, to $13.25 a share from $11.25 a share, AirTran took its bid directly to Midwest shareholders, bypassing the board of directors.

At that time, AirTran Chairman Joe Leonard said the company hoped to get enough large shareholders to support the higher bid, bringing pressure on Midwest's board to negotiate. Leonard also said a successful buyout would require Midwest to voluntarily suspend its poison pill.

Garrett's lawsuit raises the possibility that AirTran could more easily proceed with a hostile takeover attempt if a judge orders a suspension.

But that could be difficult to achieve.

A claim of fraud "is about the only basis that would be available" to invalidate a poison pill, said Ralph C. Anzivino, a professor at the Marquette University Law School. He said making such a claim would be "a common enough tactic" as a hostile takeover unfolds.

"Whether they can prove it or not is a question," he added.

Nespole said Midwest Air renewed its poison pill provision in February 2006. At that time, Midwest Air management said that action was not taken in response to a specific buyout offer, he said.

But AirTran had approached Midwest in December 2005 and asked the board to negotiate a sale of the company, Nespole said.

As a result, the Midwest statement about extending the poison pill "appears to be at least misleading, if not patently untrue," Nespole said.

That AirTran offer in 2005 was rebuffed by Midwest's board, which also rebuffed a second offer in late 2006. AirTran in December disclosed the rejection of both offers in hopes of bringing shareholder pressure on Midwest's board to reconsider.

Midwest shares closed at $13.26, down 50 cents, on Wednesday.

Avrum D. Lank of the Journal Sentinel staff contributed to this report.

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