Capital, Northwest in takeover bid for Midwest Air

-TPG Capital, Northwest in takeover bid for Midwest Air
Mon Aug 13, 2007 1:43AM EDT

NEW YORK, Aug 13 (Reuters) - Midwest Air Group (MEH.A: Quote, Profile, Research) said it will pursue a takeover offer, likely to exceed $400 million, from U.S. private equity firm TPG Capital, which includes a passive investment from the U.S. No 5 airline Northwest Airlines.

The $16 per share all-cash offer for the Milwaukee, Minnesota-based Midwest tops the roughly $389 million earlier $15.75 per share cash-and-stock offer from AirTran Airways (AAI.N: Quote, Profile, Research).

TPG's offer, which Midwest said is subject to a final value calculation but will likely exceed $400 million, represents a 12.5 percent premium to Midwest's closing share price of $14.23 a share on Friday on the American Stock Exchange.

The transaction is not subject to financing conditions, TPG said in its offer letter to Midwest -- a key consideration given recent credit market turmoil that has created bumpy conditions for other private equity deals.

Midwest and TPG, which has a history of investing in airlines, including approaches earlier this year in the European airline sector, expect to sign a definitive merger agreement by August 15, Midwest said in a statement late on Sunday.

Northwest (NWA.N: Quote, Profile, Research) said its investment, for an undisclosed amount, will facilitate the transaction but it added that it has no plans to participate in the management or control of Midwest if TPG is successful in its takeover bid.

Orlando, Florida-based AirTran, the No. 10 U.S. airline, said earlier it was walking away from its hostile bid to acquire Midwest in light of the rival takeover offer. But it said that TPG's offer, given the passive investment from Northwest, could raise antitrust concerns, which could make it more difficult for the transaction to win regulatory approval.

TPG, in its letter to Midwest, said it does not anticipate any issues in obtaining antitrust clearance or other regulatory approvals.

Airline analysts have said the industry needs consolidation to reduce excess seats and capacity so airlines can raise fares and derive savings from combining their operations.

Northwest said a code share agreement with Midwest will remain in place, and post-merger the two airlines could explore cost reductions such as joint fuel purchasing.

Maybe NW found its DC-9 replacement?

I understand the article states they will not be taking over the airline, but it would still be interesting if they ended up doing so, but Midwest has 25 717's

Northwest has 103 DC-9's, but I think the fleet replacement could go as such:

E170 (Compass)
E190
717

That should fill the market that the DC-9 filled.

Well it looks like Midwest will remain a stand alone company backed by a private capital firm with support from NWA who won't have any say in the running of the company. IMO its a good move by NWA as they will protect themselves from a major low cost hub so close to their home base. Midwest really isn't a major competitor to NWA as their product offering is so different plus they already have a code share with NWA so for both airlines this looks to be a win win situation. I'm just happy the cookie will live on!

Quote:

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AP
Midwest Dodges Airtran Bid
Monday August 13, 9:38 am ET
By Dinesh Ramde, Associated Press Writer
Midwest Lets AirTran Takeover Bid Expire, Reviews TPG Capital Offer

MILWAUKEE (AP) -- An investors group that includes Northwest Airlines Corp. has offered to buy Midwest Air Group for more than $400 million, circumventing a hostile bid by AirTran Holdings, Inc.
The investors, led by TPG Capital, of Fort Worth, Texas, would convert Midwest Air to a privately held company, according to a statement issued late Sunday.

Midwest Air Chairman and Chief Executive Timothy Hoeksema has fought to keep Midwest Airlines and Midwest Connect as stand-alone, regional airlines and out of the hands of AirTran, which wants to make Milwaukee a second hub.

The cash offer from TPG Capital to acquire all outstanding shares at $16 a piece topped a bid of $15.75 per share from AirTran, a price that spokesman Tad Hutcheson said made the equity value of the transaction in excess of $431 million based on Friday's closing price of AirTran stock.

The initial value of AirTran's offer was placed at $389 million based on its stock price at the time.

"The board concluded that the TPG offer presented greater value and certainty for Midwest shareholders than the AirTran offer," Midwest said in a statement.

Northwest would effectively block AirTran from developing a hub in Milwaukee that could draw passengers who may otherwise use Northwest hubs in Minneapolis, Detroit and Memphis.

Northwest would not participate in the management or control of Midwest should the TPG offer be finalized, the Eagan, Minn.-based airline said in a statement.

Midwest and TPG were expected to reach an agreement no later than Wednesday.

The deal must be approved by the U.S. Department of Justice.

Midwest Air controls about 50 percent of the market at Milwaukee's Mitchell International Airport, while Northwest has about 19 percent.

"We believe that our experience in this sector, together with our track record for maintaining stable, long-term investments, argue strongly in favor of an acquisition by TPG," Partner Richard P. Schifter said in a letter to Midwest's board of directors.

David Hirschman, another AirTran spokesman, said the Orlando, Florida-based parent company of AirTran Airways will return to its strategy of growing as a standalone business.

"We've said all along that this (deal) is something we'd like to do, not something we need to do," he said. "We've got great growth prospects independently and that's what we're going to focus on."

AirTran's tender offer technically expired Friday at midnight but both sides had until the market opened Monday to reach an agreement.

Hirschman said AirTran wasn't ruling out future talks. But he said Midwest has done a disservice to its shareholders, nearly two-thirds of whom had agreed to tender their shares to AirTran.

AirTran tried for months to takeover Midwest, raising its offer several times since an opening offer $78 million in June 2005. Midwest persistently rejected AirTran's offers, saying it would be more profitable alone.

Midwest's earnings have tumbled. In the second-quarter, Midwest's profit fell 45 percent, hurt by lower fares and higher fuel costs.

Twice this year Midwest has said it wouldn't meet its full-year profit expectations.

AP Business Writer Emily Fredrix contributed to this report.

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"Milwaukee, Minnesota" lol....Someone should give the Reuters desk in Bangalore a map of the US!