AirTran increases its bid for Midwest
Published: Friday, January 12, 2007 at 6:01 a.m.
Last Modified: Thursday, January 11, 2007 at 10:51 p.m.
MILWAUKEE — AirTran Holdings Inc. appealed directly to shareholders Thursday with a sweetened offer of about $345 million in cash and stock for rival Midwest Air Group Inc. after the regional carrier rebuffed its earlier unsolicited takeover bid.
AirTran Holdings, which owns the discount carrier AirTran Airways, raised its offer for Midwest Air Group by almost 18 percent. Midwest said its board will evaluate the latest offer and make a recommendation to shareholders within 10 days.
"We certainly believe the consolidation has started in this industry and will continue and that Midwest is vulnerable," AirTran Chairman and Chief Executive Joe Leonard said during a visit to Milwaukee.
AirTran's renewed effort to buy Midwest Air comes only a day after US Airways Group Inc. raised its bid for Delta Air Lines Inc. by about 20 percent to $10.3 billion. Delta had rejected the previous offer and opposed to the takeover bid.
After years of losses following the Sept. 11 attacks in 2001, the industry has begun regaining its balance. Critics of consolidation say fewer carriers could mean higher prices for air travelers.
The new offer for Midwest Air Group was equivalent to $13.25 per Midwest share, based on the closing price of AirTran common stock on Monday and represented a premium of almost 3 percent over the airline's closing share price on Wednesday.
AirTran earlier bid $11.25 per share for Midwest Air Group, but the Midwest board turned down that offer on Dec. 6, prompting the Orlando discount carrier to bypass the board in its latest takeover attempt.
"We thought we would get no more consideration than we've gotten so far. We thought we'd let the owners decide," Leonard said.
Carol Skornicka, Midwest's senior vice president of corporate affairs, said the airline had been expecting another offer from AirTran, but expected the company to come back to the board. She said it was somewhat surprising that AirTran made the improved offer "directly to shareholders at this stage."
Midwest Air Group climbed to a new 52-week high of $13.48 before closing at $13.40, up 50 cents, or 3.9 percent, on the American Stock Exchange. Airtran shares rose 48 cents, or 4.03 percent, to finish at $12.40 on the New York Stock Exchange.
The offer consists of $6.625 in cash and 0.5884 shares of AirTran common stock for each Midwest share.
Midwest Air Group, which operates Midwest Airline and Midwest Connect, promotes itself as "the best care in the air," with its wide leather seats and chocolate chip cookies baked on board.
Some passengers and shareholders fear those touches might end if AirTran is successful in its hostile takeover.
But Leonard said a merger would create a more competitive company in the changing airline industry and provide better service to underserved cities such as Milwaukee and Kansas City.
He told investors in a conference call that the combined company would have more modern equipment, coast-to-coast service with multiple hubs and no "gas guzzling" aircraft like those he said Midwest currently operates.
Helane Becker, a transportation analyst with Benchmark Co. LLC of New York, said AirTran and Midwest seem to be a good fit.
"There's a lot of synergies that AirTran can get in this transaction...You don't need two CEOs, two CFOs," she said.
Representatives from the Air Line Pilots Association met this week with AirTran executives, according to Jerome G. Schnedorf, chairman of the Midwest Airlines unit, which includes about 380 pilots. It planned to meet with Midwest Air Group next week.
Schnedorf said the union has taken a neutral stand on the AirTran bid at this point. A closer look at AirTran's detailed economic plan is needed before it can be seriously evaluated, he said.
"You have to really look at things at that level and not have an emotional reaction to what might appear to be a good thing," he said.
Midwest has 3,500 employees, serves 47 cities and operates 341 flights a day. AirTran currently operates 700 flights a day to 50 cities with 8,000 employees. Leonard said the combined company could reach 1,000 departures a day in 74 cities.
In July, Midwest Air Group said it posted a profit of $8.8 million in the second quarter, ending a string of losses that dated to the third quarter of 2003. The company continued its profits in the most recent quarter, posting a profit of $1.6 million.
Leonard has said a combined company would reach $3.5 billion in revenues and have some 15,000 employees by the end of this year.
Other airlines continue to discuss mergers.
United Airlines' parent UAL Corp. has explored a merger with Continental Airlines Inc., though no agreements have been reached and a deal remains far from certain. That deal could hinge on the success or failure of US Airways' bid for Delta.
Meanwhile, The Wall Street Journal reported Wednesday that Northwest Airlines Corp. and Delta, both operating under bankruptcy court protection, have been talking about a deal.
The Senate Committee on Commerce, Science and Transportation has scheduled a Jan. 24 hearing on the state of the airline industry and the potential impact of mergers.
AirTran made its offer through subsidiary Galena Acquisition Corp. The offer expires Feb. 8.
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