Midwest Air Group has accepted a bid of $450m from private equity ﬁrm TPG Capital, with a passive investment from Northwest Airlines
, ending the long drawn-out take-over battle with AirTran Holdings.
Midwest entered into talks with AirTran at the end of July, but at the same time said it would also speak with other potential buyers.
TPG’s $17-per-share offer was raised from its initial offering of $16 per share. AirTran raised its cash-and-stock offer for Midwest by 2 cents to $16.27 before pulling out of the race.
AirTran was right not to raise its bid again because it was up against private equity with an all cash offer and Northwest Airlines, which is keen to defend its mid-west market.
The airline would also have had to raise ﬁnancing to fund the acquisition and in today’s volatile market that move could prove costly.
Northwest is the second largest carrier at Milwaukee
airport behind Midwest, and the two airlines earlier this year announced a code-sharing pact.
AirTran said it had hoped to acquire Midwest because the merger of the two airlines would have created a national low-cost carrier. However, it said it did not need to merge with another carrier to achieve its business goals, including adding new markets and continued offering of low fares.
TPG’s offer represents a nearly 16% premium to Midwest’s closing share price of $14.70 as CAR went to press.
The transaction is not subject to ﬁnancing conditions, Midwest said – a key consideration given recent credit market turmoil that has created bumpy conditions for other private equity deals.
Northwest has not disclosed the value of the investment it plans to make under TPG’s offer for Midwest. The airline said although it had no plans to participate in management or control of Midwest, it will continue a code-sharing agreement and could explore cost reduction measures such as joint fuel purchasing.
AirTran had earlier said that Northwest’s involvement in TPG’s offer could raise anti-trust concerns, but the private equity ﬁrm said it did not expect to face any such hurdles.
“The Midwest board has chosen to ignore the overwhelming majority of shareholders’ wishes to merge with AirTran, a partner with whom Midwest could have grown and become a national carrier,” said AirTran CEO Joe Leonard, in a prepared statement.
“Instead, the Midwest board has chosen a path that will beneﬁt current senior manage-ment by selling out to a private equity ﬁrm and a so-called ‘passive’ investor whose involvement will surely raise anti-trust concerns,” Leonard added.
This is the second time AirTran has lost out on a potential takeover. In 2004, Southwest blocked AirTran’s efforts to open a hub at Chicago
airport by offering a higher price and a code-share agreement with then-bankrupt ATA Airlines
Midwest’s current management will be retained under the takeover. Chief executive Timothy Hoeksema has led the airline since 1984.
The sale to TPG is expected to close in the fourth quarter, subject to shareholder and regulatory approvals.