Midwest leaders to cash in: Chairman is in line for payout of $10 million when airline is sold

Sep. 25--Midwest Airlines Chairman Timothy Hoeksema is expected to get a payout of more than $10 million when his company is sold later this year.

In addition, four Midwest senior vice presidents will receive six- or seven-figure sums when the $450 million deal goes through, according to the proxy statement for a special meeting of Midwest Air Group Inc. shareholders to be held later this year.

After the deal, Midwest will be a private company owned by TPG Capital LP of Fort Worth, Texas, and Northwest Airlines Inc., based in Eagan, Minn.

The TPG/Northwest group won a bidding war with AirTran Holdings Inc. of Orlando, Fla., last month when it agreed to buy Midwest for $17 a share in cash.

Midwest Air, which is based in Oak Creek, operates Midwest and Skyway Airlines, the leading carriers at Milwaukee's Mitchell International Airport.

Hoeksema is due $10,387,606 when the deal closes. All but $1,667,000 is for stock and options he has accumulated during his almost 25-year career with the company. The rest is the value of a supplemental pension plan that will no longer exist once the company is sold.

The senior vice presidents, and the amounts they will receive, include: Carol Skornicka, corporate affairs, $1,651,050; David Reeve, operations, $1,637,628; Curtis Sawyer, chief financial officer, $1,136,776; and Scott Dickson, chief marketing officer, $991,203. While all of them also will receive money from the supplemental pension plan, almost all of their payouts are from stock and options.

All five are forgoing any payments in their contracts for change in control of the company because they will remain with the firm once the TPG deal is done. Were any to lose their jobs because of the sale, they would be paid from $1.4 million, in the case of Skornicka and Reeve, to $4.3 million for Hoeksema under the provisions of the contracts.

"Unlike many if not most takeovers, there is no 'windfall' of money paid to the executive simply because there is a change of control," Skornicka stated in an e-mail. "It's all money they have earned over the years. By contrast, had there been an AirTran deal, this group would have received the windfall severance payments."

Deemed not excessive

That is because AirTran said it would have merged Midwest operations into its own corporate structure, jettisoning Hoeksema and other top executives and thus triggering the change in control payments.

The amounts due to the executives "just didn't jump out to me as being excessive," said Jim Sillery, a principal in the Chicago office of Mercer, a human relations consulting firm. Often, he said, executives will be paid the amounts for change in control even if they stay after a sale.

The amounts the executives are collecting are probably small compared with what they might earn if the company is sold again, said Patrick McGurn, executive vice president and special counsel to Institutional Shareholder Services, Rockville, Md. ISS provides advice to pension funds and others on how to vote on various issues.

TPG is a private equity firm that buys companies, holds them for a while and then expects to sell out at a profit. TPG officials have said they expect to eventually to sell their stake in Midwest, with Northwest mentioned as a possible buyer.

Equity usually involved

In the case of a second sale, executives of the company being bought usually have equity in the deal, McGurn said.

"Private equity tends to pay by giving the person a very considerable chunk of equity with a performance requirement. (Hoeksema) probably stands to make more going forward under this new ownership structure then he will make as a result of this deal," McGurn said

Skornicka declined to comment on whether Hoeksema or other executives would have equity in the company once it is owned by the TPG/Northwest group.

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