AirTran aai resumed its pursuit of Midwest Air meh on Tuesday with a new cash-and-stock bid topping the $16-a-share cash offer made Sunday by TPG Capital and Northwest Airlines nwa.
Atlanta-based AirTran is offering $10 in cash and AirTran stock worth $6.25 for every share of Milwaukee-based Midwest. AirTran values its offer at $445 million.
On Sunday, AirTran dropped out of the bidding for Midwest, which it started in December. It pulled out rather than try to outbid Fort Worth-based TPG, the takeover firm headed by David Bonderman. Previously known as Texas Pacific Group, TPG has invested in several airlines since it took over a then-bankrupt Continental Airlines in the early 1990s.
Before Sunday, AirTran was offering $9.50 a share plus just over half a share of AirTran stock for each Midwest share to be bought. It then made a supposedly final cash-and-stock offer worth $15.50 per Midwest share, or about $431 million, that was beaten by TPG's all-cash offer worth $400 million.
AirTran President Bob Fornaro said his carrier dropped out of the bidding at that point because, "We didn't want to be a stalking horse for some other bidder." But late Tuesday, just after stock trading ended on Wall Street, AirTran jumped back into the battle with its $16.25-a-share offer.
Fornaro said AirTran officials studied the TPG/Northwest offer and plans, and heard from Midwest shareholders, employees and some people in the Milwaukee community. Those people, he said, fear a TPG/Northwest takeover will mean service reductions at Milwaukee, lost jobs and reduced economic activity for Milwaukee, and higher travel prices for consumers.
Earlier Tuesday, Pequot Capital, Midwest's largest shareholder, with almost 9% of the carrier's stock, said in a filing with the Securities and Exchange Commission that it wasn't convinced the TPG/Northwest $16-a-share bid was better than AirTran's Sunday offer of $15.75.
"We believe there is significantly more upside in AirTran's cash-and-stock offer than a nominally higher all-cash deal," said Pequot managing director Steve Pigott in a letter to Midwest that was part of the filing.
For TPG to get the kind of returns it normally gets from its investments in airlines and other companies, Midwest would have to shrink significantly, Fornaro said. And that appears to be fine with TPG's investment partner Northwest, he added.
"Frankly, Northwest is trying to limit competition in the upper Midwest," Fornaro said. "This is a blocking move, and Midwest is a pawn. The customers of Midwest and its employees are the losers, along with the Milwaukee community. "
Spokesmen for both TPG and Northwest late Tuesday declined to comment on AirTran's renewed bid.
Fornaro said Wisconsin corporate law on takeovers, which applies because Midwest is incorporated in that state, requires that board members of a targeted company not only consider the price of a takeover offer but also the effect on employees and the community. "On all three scores, our bid wins," he said. AirTran shares closed at $10.35 Tuesday, up 3 cents — the only large U.S. carrier's shares to rise on the day.
Fornaro said he disagreed with some industry analysts who have said publicly that AirTran would do better without a merger than with it. "We have Plan A and Plan B. It's just a matter of deciding which is better. We think the merger is better, they don't. But either way, they like AirTran's prospects," Fornaro said.