MILWAUKEE - AirTran Holdings Inc. revived its hostile takeover effort for Midwest Air Group Inc. yesterday, offering $16.25 per share in a cash and stock deal worth $445 million.
AirTran had been courting Midwest for two years and abandoned its hostile takeover effort Sunday night after offering $15.75 per share in cash and stock for a deal worth $431 million. Private investment firm TPG Capital offered $400 million cash just hours later and Midwest's board of directors unanimously chose to pursue that sale, saying it would allow Midwest to keep its name and heritage. AirTran, based in Orlando, Fla., has said it would incorporate Midwest under its name.
Its latest offer was $10 per share in cash and 0.6056 of a share in AirTran stock. Based on Monday's closing price for AirTran stock, the deal was worth about $16.25 a share, or $445 million. Midwest said it was taking the new offer under consideration, while a spokesman at TPG Capital declined to comment. The companies had expected to enter a definitive agreement today.
Robert Fornaro, AirTran's president and chief operating officer, said it renewed its bid because the deal is important to AirTran's goal of becoming a low-cost national carrier. The company could do it without Midwest, he said, but the combination of the two would allow AirTran to grow in new regions of the country.
"It accelerates our diversification," he said. "We don't need it. We're stronger with it, and we believe Midwest is stronger with it. That was the premise of everything that we've done."
AirTran has been hearing from shareholders who were disappointed that Midwest's board chose the TPG deal, Fornaro said. It also was concerned about Northwest Airlines Corp., which is a passive partner in TPG. Fornaro said Northwest wants to buy Midwest simply because it doesn't want AirTran to increase its business at Milwaukee's Mitchell International Airport. Midwest is the largest operator out of the airport, carrying about half the passengers leaving last year. Northwest was the second largest, with about 18 percent.
"They don't want AirTran in there," Fornaro said. "They don't care if Midwest survives."
It was not clear how big a stake Northwest has in the deal. The airline, based in Eagan, Minn., 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 spokesman Darren Shannon said the company had no immediate comment on AirTran's new offer.
AirTran's announcement came after the markets closed yesterday. Midwest shares fell 4 cents to close at $13.96 but gained more than 7 percent to $15.03 in after-hours trading. Shares of AirTran rose 3 cents to close at $10.35 and lost 2 cents after hours. Shares of Northwest closed down $1.20, or 6.6 percent, to $17.10, and gained 9 cents after hours.
Midwest shareholders had seemed eager for an AirTran takeover, with more than half agreeing to tender their shares should the deal be approved. They also tossed out three of Midwest's board members and replaced them with a slate nominated by AirTran at their annual meeting in June.
Midwest's largest shareholder, Pequot Capital Management Inc., said in a letter released yesterday that it had "significant concerns" about the deal with TPG. Pequot managing director Steve Pigott told Midwest's board that TPG's offer may not be worth as much as a deal with AirTran in the long term because AirTran and Midwest would be able to save money by eliminating overlaps between the two businesses.
Midwest had pledged for months to remain independent as AirTran pursued a very public hostile takeover. The operator of low-cost AirTran Airways raised its offer several times from its initial bid of $78 million in June 2005 and was rejected each time. But under shareholder pressure, Midwest's board set up a committee last month to look into a sale and make a recommendation to the full board. The company eventually announced it had four suitors, though the only one it acknowledged publicly was AirTran.
Midwest's stock price has risen during AirTran's pursuit, but its earnings have tumbled. In the second quarter, Midwest's profit fell 45 percent, hurt by lower fares and higher fuel costs. Midwest has said twice this year that it wouldn't meet its full-year earnings expectations.