Service and Wide Seats Helped Elevate Deal Between Midwest and TPG

The all-cash offer from TPG, backed by minority investment from Northwest Airlines Corp., beat out a rival cash-and-stock offer worth $16.27 a share from AirTran Holdings Inc.

A group of Texas investors stepped up their interest in buying Midwest Air after one of them experienced the gospel according to Timothy Hoeksema: Differentiate or die.

Richard Schifter, a partner with private equity firm TPG Capital, was winging his way to Milwaukee's Mitchell International Airport a few weeks ago to meet with Hoeksema, chairman and chief executive officer of Midwest Air Group Inc.

Schifter had never flown Midwest Airlines before. When he got a firsthand look at its wide, two-across seats and high level of customer service, he liked what he saw, Hoeksema said.

"They said, 'Hey, this is a different airline,' " Hoeksema said Friday, the day after Midwest Air accepted a $17-a-share offer from TPG Capital. "They see value there."

The all-cash offer from Fort Worth, Texas-based TPG Capital, backed by a minority investment from Northwest Airlines Corp., beat out a rival cash-and-stock offer worth $16.27 a share from AirTran Holdings Inc. Along with garnering more money for Midwest Air's shareholders, the TPG/Northwest bid allows Midwest Airlines and Midwest Connect to remain as independent carriers, with a focus on high-end service, instead of being merged into AirTran's larger, low-fare operations.

Also, instead of being pushed out the door by AirTran, Hoeksema will remain as the top boss at Midwest Air, a company he helped launch more than 20 years ago.

Just a week ago, it appeared the Oak Creek-based carrier was all but sold to Orlando, Fla.-based AirTran, which had pursued the company for nearly three years. AirTran went public with its intentions in December, and since January had attempted a hostile takeover.

But after several days of back-and-forth bidding, the Midwest Air board voted Thursday to accept a sweetened TPG / Northwest offer. The $450 million deal, which requires approval by regulators and shareholders, should close by the end of the year, Hoeksema said.

Hoeksema has "built a really interesting product, and brand, at Midwest," said Richard Hurowitz, CEO at Octavian Advisors, a New York hedge fund operator that owns 7.5% of Midwest Air stock. Hurowitz was among the most vocal advocates of the company's sale, and he frequently criticized Hoeksema for opposing AirTran's takeover attempts prior to TPG Capital's emergence as a bidder.

Hurowitz said Friday that he supports the sale to TPG Capital.

Another longtime Hoeksema critic, airline industry consultant Scott Hamilton, said Hoeksema helped build a "corporate culture" at Midwest Air that is "among the best in the industry."

Airline's beginnings

Midwest Airlines started in 1984. Hoeksema had been hired in 1969 by Kimberly-Clark Corp. as a pilot for the paper manufacturer's corporate aviation division, and he worked his way up to division chief. He led the effort to begin selling air travel to the public on Midwest Airlines, then Midwest Express.

Midwest provided a niche product: two-across seating with a strong focus on customer service. The airline also offered gourmet meals served on china, and complimentary wine and champagne - appealing to business travelers willing to pay higher fares. Chocolate chip cookies, baked on board during flights, became a signature item.

In 1995, Kimberly-Clark cashed out its investment by spinning off Midwest as a stand-alone, publicly traded company. The airline continued its steady growth.

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