The besieged castle: Midwest’s gates opening?

Under assault for more than a year, Midwest Airlines has held out against the entreaties of AirTran, saying the market likes its independence. The-Siege-of-a-Castle.jpg But after the market’sresponse to the two carriers in the second quarter, with Midwest profits plummeting and AirTran’s soaring, the besieged may be forced to listen. In other words, it may be opening the gate and letting in the foe. The airline said that it was still not accepting the AirTran offer but was putting out for sale sign in the form of a committee just created to “to explore strategic and financial alternatives that would serve to enhance value for the company’s shareholders” and to make a recommendation to the board. That’s corporate for ‘let’s see if we can get a better offer’.
The Midwest board, even though it has three recently elected AirTran allies in in its ranks, has not changed its recommendation to reject the $389-million AirTran offer, the company said. Instead, Midwest said other parties have approached it and that the panel will talk with them. The new committee skinner.bmp will talk “with other strategic and financial parties that have recently expressed interest in pursuing a transaction with Midwest”, it said, but would not identify those parties. “By providing AirTran and other interested parties with access to our confidential information and holding discussions with them, the board is pursuing a process to evaluate whether greater value can be delivered to shareholders through a near-term transaction”, the new committee chair, former transportation secretary Sam Skinner, said in a prepared statement. Midwest’s single largest shareholder, Wall Street hedge fund Octavian Advisors, has urged it to deal, and the fund’s chief, Richard Hurowitz, greeted the news.

Skinner may need some luck in finding a friendly buyer. In the last quarter, Midwest net income plunged by 47% in the latest quarter, year on year, while AirTran saw its net revenue climb by 17%, year on year. AirTran first approached Midwest more than two years ago, and has since won seats on the Midwest board and compiled enugh shareholder support to win a proxy fight. After the most recent earnings reports, AirTran chief executive Joe Leonard quipped, “I would guess, after looking at the lousy numbers they produced today, they would want to get together pretty quickly.” AirTran has extended its offer repeatedly, but some think its latest deadline – 10 August – may be the final deadline.

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