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Midwest Shopped For New Owner

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By EMILY FREDRIX, The Associated Press

Published: September 28, 2007

MILWAUKEE - Facing a hostile takeover by rival AirTran Holdings, Midwest Air Group contacted several companies to persuade them to buy the airline instead, according to new regulatory filings.

A week after Midwest shareholders replaced three board members with a slate nominated by AirTran - putting more pressure on Midwest to accept a deal - the company's top executive called his counterpart at Northwest Airlines to see whether the airline would be interested in a possible buyout, Midwest said in filings Thursday with the Securities and Exchange Commission.

That conversation in late June between Midwest chief executive Timothy E. Hoeksema and Northwest chief executive Doug Steenland 'discussed Northwest's interest in exploring a possible transaction,' the filings said.

On July 13, Hoeksema called David Bonderman, managing partner of private equity firm TPG Capital, to gauge his interest, the documents said.

The calls worked. AirTran's offers were spurned, and TPG and Northwest eventually partnered on a $450 million cash buyout that Midwest accepted in August.

The filings were copies of letters sent to shareholders Thursday explaining the deal and calling for a special shareholders meeting Oct. 30. A majority of shareholders must approve the buyout, which will pay Midwest shareholders $17 a share in cash.

Midwest anticipates shareholders will approve the deal.
AirTran first approached Midwest about a buyout in June 2005, offering the equivalent of about $78 million, or $4.50 a share. AirTran took the potential buyout public in December when Midwest's board spurned a sweetened offer of $11.25 a share, or about $290 million.

As months passed and the offers rose, Midwest looked elsewhere.

Northwest spokesman Darren Shannon said Midwest's financial adviser, Goldman Sachs, also had a hand in bringing the three companies together and facilitating the deal. Midwest will pay Goldman Sachs $9.6 million for the advising services, the filings said.

Representatives of TPG and AirTran did not immediately return calls seeking comment Thursday.
AirTran never let up in its effort to create a national, low-cost carrier through a merger with Midwest. The Orlando-based operator of AirTran Airways made a final offer in August, offering Midwest shareholders $10 in cash and 0.6056 of a share of AirTran stock for each Midwest share. The deal's value depended on the price of AirTran shares. On the day it was made, it was worth $16.25, or about $445 million.

Midwest went with the all-cash TPG deal, saying its board believed that sale provided more value to shareholders than AirTran's cash-and-stock deal. The value of AirTran's offer dropped to $427 million, or $16.04 a share, the day Midwest went with TPG.

The TPG deal also allowed Midwest to keep its name and independence. AirTran had said it would merge Midwest under the AirTran name.

The filings said Midwest's board looked at whether the deal would need antitrust approval, because of Northwest's involvement. Hoeksema has said he expects it will pass scrutiny.

Northwest is considered a passive investor, though the filings finally showed by how much. The airline, which emerged from bankruptcy in May, is committed to paying nearly $213.3 million, or 47 percent of the deal, while TPG will pay the remaining 53 percent, or $238.1 million, the filings said.

Northwest has said it would not participate in Midwest's management.

'We want to emphasize this is just a financial transaction for us,' said Shannon, the Northwest spokesman. 'We will have no control over the airline.'

The sale is expected to close by the end of the year.

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