NWA joins private equity group's bid for Midwest Air

(AP) - An investors group, which includes Northwest Airlines Corp., has offered to buy Midwest Air Group for $16 a share, 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.

The board considered the TPG Capital bid to be a superior offer that will allow the airline to proceed with its goals, Midwest executive Carol Skornicka said Monday.

"They've become familiar with our long-term plan and became persuaded of its value and bought into that," said Midwest executive Carol Skornicka.

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

Hoeksema earlier announced an expanded role for Midwest Connect and a plan to boost passenger count and revenue on some Midwest Airlines flights.

The cash offer from TPG Capital to acquire all outstanding shares topped an increased bid of $15.75 a share by 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.

For Northwest, its investment would help prevent AirTran from developing a hub in Milwaukee and drawing away passengers who fly to Northwest's 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 a merger agreement no later than Wednesday.

The nine-member Midwest board of directors, which includes three AirTran directors, approved going forward with the TPG Capital offer late Sunday.

"We've reached agreement on many critical terms," Skornicka said.

The deal will need approval from the U.S. Department of Justice, which reviews airline mergers for possible antitrust violations. Skornicka said Midwest's directors are confident the agreement will pass that review.

"The board was advised by several law firms, so the board was fully advised on antitrust issues and that it would close," she said.

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

TPG, formerly Texas Pacific Group, is a private equity investor. Partner Richard P. Schifter said TPG plans to finance the transaction through contributions from TPG Partners V, L.P., a fund TPG manages with $15.3 billion of committed equity capital, as well as from one or more partners.

"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," Schifter said in a letter to Midwest's board of directors that was dated Sunday and was reproduced in the Midwest statement.

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 for now, 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 take over Midwest, raising its offer several times since an opening offer $78 million in June 2005. All the while, Midwest steadfastly rejected AirTran's escalating offers, saying it would be more profitable alone.

But Midwest's board changed its tune in the last month. They set up a committee to start considering a sale and make a recommendation to the full board. The company announced it had four suitors though it did not name them or specify if they were airlines, other types of companies or institutional investors.

Midwest's earnings have tumbled even as their stock price has risen since AirTran went public with its offers in December. 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 earnings expectations.

(Copyright 2007 by The Associated Press. All Rights Reserved.)