Follow @AirwiseNews

AirTran Still Looking To Buy Midwest

Bookmark and Share

AirTran Holdings, parent of AirTran Airways, wants investors in Midwest Air to persuade that carrier's management to reconsider a USD$290 million takeover bid, AirTran's chief executive said on Wednesday.

"I think shareholders will definitely call the management and ask why the heck they aren't taking the premium advantage we're offering," CEO, Joe Leonard said.

He said AirTran continues to seek talks to try to craft a deal with Midwest, even though Midwest has said several times that it prefers to remain an independent airline.

"The reason we went public (with the bid) is that we have not been able to engage them in any kind of discussion," Leonard said.

Milwaukee-based Midwest rejected AirTran's offer in a December 6 letter from Midwest Chief Executive Timothy Hoeksema to Leonard.

"The board feels that the company's strategic plan and remaining independent hold the best promise for continued growth and increased shareholder value going forward," Hoeksema wrote.

AirTran said on Wednesday it was offering USD$11.25 a share in cash and stock, a 24 percent premium over Midwest's closing stock price of USD$9.08 on the American Stock Exchange on Tuesday.

At that price, Midwest has a total equity value of about USD$290 million, AirTran said.

AirTran said the combination would create a low-cost airline with combined revenue of about USD$3 billion in 2007 and generate more than USD$60 million in estimated cost savings.

A merger also could result in a small clash of cultures between the two airlines.

Midwest is well-known for its in-flight perks such as leather seats and footrests on flights to leisure destinations, although the carrier scaled back some of its services after the September 11, 2001, terror attacks. AirTran has a business class, but generally offers a leaner, more basic service.

AirTran's push to buy Midwest marks the latest move by airlines to consolidate in the US market. United Airlines and Continental Airlines have held preliminary talks about a potential merger, sources familiar with the situation said on Wednesday.

Orlando-based AirTran said it had originally outlined the merger proposal to Midwest on October 20. Midwest rebuffed that proposal, AirTran said.

AirTran said it had sent another letter to the Midwest board on Wednesday, saying it would continue to pursue a deal.

In Wednesday's letter, AirTran said it was prepared to "sit down and enter into serious discussions and, following that, consider in our offer any enhanced values that may be demonstrated."

"The AirTran-Midwest deal has a much better chance of being done with the regulators," Calyon Securities analyst Ray Neidl said. "There is very little overlap. They are both relatively small companies."

Any deal between United Airlines and Continental would probably be one of the largest in the industry.

A month ago, US Airways offered to buy rival Delta Air Lines for USD$8.7 billion, raising expectations of consolidation in an industry struggling with high fuel prices and competition from discount carriers.

Talks between Continental and United, which each have market value of about USD$4 billion, picked up pace after US Airways made the offer last month.

(Reuters)