Northwest Would Own 47 Percent of Midwest Airlines

Sep. 14--Northwest Airlines would be a minority investor in the buyout of Midwest Airlines, but a very sizable one.

Northwest would own 47 percent of the Milwaukee-based carrier under Midwest Air Group Inc.'s agreement to be acquired by a Texas private equity firm.

The size of Northwest's stake was among the details released in the proxy statement filed Thursday by Midwest delineating its deal to be bought by TPG Capital for $17 a share.

Northwest would provide $213.3 million of the $451.4 million price tag that Midwest's board approved last month. The deal thwarted an eight-month public effort by AirTran Holdings Inc. to acquire Midwest and create a national discount carrier.

AirTran declined to comment on the disclosure regarding Northwest's stake.

TPG and Midwest executives have said Northwest would be a passive investor. The airline would not have a representative on the new Midwest board, nor any management role in running Midwest.

"That's what is meant by 'passive investor,' " said Carol Skornicka, Midwest's senior vice president and general counsel. "We intend to compete vigorously with Northwest in the markets we both serve."

However, many airline analysts have noted that Northwest, which is based in Minneapolis, joined the TPG bid to keep AirTran from establishing significant operations in the upper Midwest.

"I've followed Northwest Airlines for 38 years, and the word 'passive' is never one that comes to mind," said Terry Trippler, travel expert for www.terrytrippler.com . "What looked like a very good defensive move for Northwest may ultimately turn out to be a very good offensive move. It may be sooner rather than later that Northwest will have at least a 51 percent stake in Midwest."

Last month when the deal was announced, TPG partner Richard Schifter discussed that under the deal Northwest had the opportunity to eventually buy the entire airline. However, he also noted that TPG had made other investments in airlines that had lasted for several years.

Trippler noted that Northwest rather quietly had expanded its national presence in the U.S. airline industry. Northwest also holds a stake in Continental Airlines and has the right to block any merger proposals by the Houston-based carrier.

"Northwest is building an invisible kingdom," he said. "They are quietly and methodically laying the foundation for substantially expanding their influence in the heartland."

Trippler said the Kansas City market should benefit regardless of whether Midwest remains independent or Northwest eventually becomes its owner.

"Kansas City's in the right place at the right time, so I don't think you're going to lose service in either scenario," he said. "In the long term, Midwest will keep adding flights in Kansas City. But I definitely wouldn't burn my Northwest frequent-flier card if I lived there."

Midwest is the second-busiest carrier at Kansas City International Airport with 32 flights daily, behind Southwest Airlines.

The proxy details the back-and-forth bidding war that erupted after Midwest announced a tentative deal with TPG on Aug. 12 for $16 a share.

AirTran upped to its offer two days later to a cash-and-stock offer for $16.27 a share.

Midwest asked both sides to submit their "best and final" offers by noon Aug. 16. TPG came in with its all-cash $17-a-share proposal, while AirTran chairman and CEO Joe Leonard told the Midwest board's strategic review committee that AirTran would not revise its increased offer.

After the Aug. 16 deadline, a motion was made to give AirTran, and TPG if appropriate, a last chance to increase their offers before the board made its final decision.

That motion was defeated 6-3, with the three votes in favor coming from three directors nominated by AirTran. They had taken their seats in June.

The board then unanimously approved the TPG-Northwest deal.

Midwest shareholders of record on Sept. 24 will get to vote on the TPG deal. A date for a special shareholders meeting on the sale has not been set.

Midwest and TPG Airline officials said they expected the deal to close in the fourth quarter.

To reach Randolph Heaster, call 816-234-4746 or send e-mail to rheaster@kcstar.com.

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