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Northwest in group buying out Midwest

By ASSOCIATED PRESS
Published August 18, 2007

MILWAUKEE - Northwest Airlines Corp. could end up owning rival Midwest Air Group Inc., which has agreed to a $450-million buyout offer from private equity firm TPG Capital.

Northwest is a passive investor in the deal and may eventually buy Midwest outright, TPG partner Richard P. Schifter said in a conference call Friday morning.

The equity firm may want to cash out of the deal some day, he said, and Minneapolis-based Northwest could become the sole owner. Schifter said such a move could be several years away.

Midwest's decision to sell to TPG came late Thursday night and ended months of back-and-forth with rival AirTran Holdings Inc. Midwest said TPG will pay $17 per share cash, worth about $450-million based on Midwest's 26.6-million shares outstanding.

Orlando-based AirTran's hostile takeover attempt of Midwest stretched back two years to an initial bid of $78-million in June 2005. Its last offer, a cash-and-stock deal, was worth about $16.04 a share, or $427-million.

AirTran chairman and CEO Joe Leonard said Friday in a statement that he had hoped to reach a consensual agreement with Midwest but added, "we accept the Midwest board's decision."

AirTran shares rose 19 cents, or 2 percent, to $10.16 on Friday while Midwest shares rose 87 cents, or 5.9 percent, to $15.57 after rising to a 52-week high of $16 earlier in the day. Northwest shares rose 18 cents to $16.16.

Northwest approached TPG about joining in a buyout of Midwest, Schifter said.

"We concluded there was a combination that would make sense and began in earnest frankly just a few weeks ago," he said.

Northwest is a minority investor in the deal, said Schifter, who would not disclose the airline's level of involvement. Northwest spokesman Darren Shannon declined to comment.

The deal is subject to antitrust approval. Midwest chairman and chief executive Timothy E. Hoeksema has said the company worked with lawyers to ensure it would pass. He said they would begin discussions with federal officials in the next two weeks.

Northwest has said it would not participate in Midwest's management should the TPG deal go through.

Northwest accounts for about 18 percent of the traffic at Milwaukee's Mitchell International Airport and is the second-largest carrier behind Midwest. More than half of the flights leaving from Milwaukee are Midwest.

TPG Capital, formerly Texas Pacific Group, has invested in other airlines, including Continental, America West and Ryanair.

Fast Facts:

How it will work

The deal: Midwest Air Group Inc. makes official a deal with private equity firm TPG Capital after AirTran Holdings Inc. of Orlando revived its hostile takeover attempt earlier this week. The new deal includes rival Northwest Airlines Corp. as a passive, minority investor.

The possibilities: TPG partner Richard P. Schifter says the firm will one day want to cash-out and Northwest could become Midwest's sole owner.

The likelihood: Schifter cautioned that would be years in the making. He said other alternatives would be to take the company public or look for other owners.

[Last modified August 18, 2007, 00:52:53]