Midwest sells to TPG Capital for $450M

MILWAUKEE - After months of back-and-forth battling over AirTran's effort to acquire Midwest Air Group Inc., Midwest has spurned AirTran one last time by formally deciding to sell to private investment firm TPG Capital for $450 million.

Midwest said late Thursday that TPG will pay $17 per share, beating out AirTran Holdings Inc.'s offer that had been raised several times.

The latest upgrade came earlier in the week, after the board of Milwaukee-based Midwest decided to go with a $16-per-share all-cash deal from TPG Capital, which includes Northwest Airlines Corp. as a passive partner. The parties expected to formalize the agreement Wednesday.

Instead, the board delayed action to consider a new cash-and-stock offer that Orlando, Fla.-based AirTran made after the market closed Tuesday. The board met Thursday afternoon and announced it voted unanimously for TPG's sweetened offer.

Midwest Chairman and Chief Executive Timothy E. Hoeksema called the deal "a significant milestone" for the airline company.

"The agreement preserves the airline's status as Milwaukee's hometown airline and the popular Midwest Airlines brand," he said.

AirTran had been fighting for two years to take over Midwest and had planned to integrate Midwest's operations under the AirTran name. Its offer Tuesday was worth $16.25 a share in cash and stock, or about $445 million, when it was made.

The deal offered Midwest shareholders $10 in cash and 0.6056 of a share of AirTran stock for each Midwest share, so its value depended on the price of AirTran shares, which rose 14 cents, or 1.4 percent, to $9.97 Thursday. That made the offer worth about $16.04 a share, or $427 million based on the 26.6 million shares Midwest said are outstanding.

Midwest shares were unchanged Thursday, closing at $14.70.

AirTran Chairman and CEO Joe Leonard said acquiring Midwest would have created "a unique, efficient, truly national low-cost carrier."

"We hoped the Midwest board would come to share our vision and reach a consensual agreement," Leonard said in a statement after Midwest announced its agreement with TPG.

TPG Capital, formerly Texas Pacific Group, has invested in other airlines, including Continental, America West and Ryanair.

TPG partner Richard P. Schifter said TPG looks forward to working with Midwest personnel "in driving growth and creating more value."

"We hope that our industry experience, together with an expanded alliance with Northwest Airlines, will lead to a bigger and better Midwest," he said.

It was not clear how big a stake Northwest has in the deal. The Eagan, Minn.-based airline has said it would not participate in Midwest's management should the TPG deal go through. It was not clear whether any airline operations would be combined.

Northwest accounts for about 18 percent of the traffic at Milwaukee's Mitchell International Airport and is the second-largest carrier behind Midwest. More than half of the flights leaving from Milwaukee are Midwest.

Midwest had pledged to remain independent as AirTran pursued a very public takeover. The operator of low-cost AirTran Airways had raised its offer several times, starting with $78 million in June 2005. All the while, Midwest said it preferred to fly alone and saw more value in that.

But Midwest's board last month set up a committee to start considering a sale.

Midwest's shareholders had been pressuring for a deal with AirTran. More than half of the company's shareholders had agreed to tender their shares to AirTran if a deal went through, and Midwest shareholders tossed out three board members and replaced them with a slate nominated by AirTran at their meeting in June.

In his statement, Leonard noted that Midwest shareholders recognized the value in AirTran's strategic plan, but he accepted Midwest's decision and said AirTran will continue its focus on growth.

"We pursued a deal vigorously, and for the right reasons," Leonard said. "But AirTran doesn't need to merge with any other carrier to achieve our business goals. "

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