By Brian E. Clark and David Wise
WisBusiness.com
To the surprise of few, Midwest Air Group Inc. board today turned down an AirTran Holdings offer of $13.25 a share and unanimously recommended that its shareholders also reject the bid.
Tim Hoeksema, Midwest’s chairman and president, said AirTran’s latest offer continues to undervalue Midwest and that selling to Florida-based AirTran would be wrong because Midwest is beginning to grow again after five years of struggles.
He also announced that Midwest had net income of $3.6 million for the fourth quarter and net income of $5.4 million for all of 2006. That is a significant improvement over 2005 when Midwest lost $13.8 million in the fourth quarter and nearly $65 million during the entire year. He also said Midwest’s 2006 operating revenue increased 27.1 percent to $664.5 million.
“It’s no wonder AirTran thinks Midwest is a good company to buy,” he said. “We think we are a great company for our shareholders to own.”
But he said the offer was “opportunistic and inadequate.”
Spurned yet again, AirTran CEO Joseph Leonard reacted angrily, charging that the Midwest board had “unilaterally rejected” what it termed a
strong offer. Leonard urged Midwest shareholders to pressure the board and tender their shares.
Analysts were split on Midwest’s rejection. Helane Becker, an analyst with New York-based Benchmark Co., said the Midwest board is correct to turn down the offer.
She said she was impressed with Midwest’s latest numbers and agreed that the airline has turned around and is “beginning to see the fruits of its
labors.”
“I was impressed with the numbers, they were better than I expected,” she said. Becker said she does not believe AirTran will increase its offer.
With no other airlines seeking to buy Midwest, AirTran is essentially bidding against itself, she said.
But Brian Nelson, an analyst with Morningstar Inc., a Chicago provider of independent investment research, was more skeptical of Midwest’s performance and said the AirTran offer is solid.
“Midwest’s results reflect a strong airline industry environment,” he said. “However, their operating profit was slim.
“Obviously, Hoeksema has a lot of influence over the board and his position is that Midwest as a stand-alone company has more value. But we
think AirTran’s offer is good and that the shareholders will eventually respond to that or perhaps a slightly better price.”
AirTran’s Leonard remains angry that Midwest will not meet with him and negotiate. He also has charged that Milwaukee is underserved and that Midwest flights are overpriced.
“We believe that the Midwest board and management have been negligent in meeting their fiduciary obligations to the Midwest shareholders, and we urge the company’s owners to tender their shares to let the board and
management of Midwest know that they want Midwest to explore the merits of the merger.”
At a noon press conference at Midwest corporate headquarters in Oak Creek, Hoeksema disputed Leonard’s argument that Milwaukee is underserved and flights are over-priced. He also predicted that if AirTran succeeds in its hostile
takeover attempt, it would eliminate service to some of the smaller cities that Midwest is committed to serving.
He said his company will continue to focus on a long-term strategy for growth.
Hoeksema said he remains cool to an offer by AirTran officials to sit down and talk. He also brushed off a question about taking Midwest private.
“You have to remember that AirTran is a competitor,” Hoeksema said. “To bring them in and open up our books and show them all of our competitive information is something that is of concern to us.”
“There’s lots of public information available,” he said.
Hoeksema pointed to an offer last year by Air Tran for $4.50 per share.
“You think we should have taken a lot of time, diverted our attention from other things … and open up our books to them for a $4.50 offer when our stock in the last 12 months has gone up 167 percent?” asked Hoeksema.
Hoeksema, however, said the board has taken AirTran’s offers seriously, saying it has a fiduciary duty to its shareholders to do so.
“It takes a tremendous amount of time, energy, effort and dollars to really do the type of careful review and research we have done,”
Hoeksema said.
Hoeksema contrasted AirTran’s record with its own, saying Midwest provides a competitive, yet differentiated product, that AirTran has
cut back service to smaller markets it once served and said AirTran has not been profitable.
“Air Tran lacks long-term commitment to new markets,” Hoeksema said.
“We’ve been committed to this market for 22 years, we continue to grow
here and we are committed to this community.”
“We are profitable. AirTran has had three unprofitable quarters out of the last four and we have had three profitable quarters out of the last four,” Hoeskema said. “That is tangible evidence that our business plan is
working and we’re very excited about the opportunities in ’07 going forward.”
“Our momentum is definitely going in the right direction.”
Hoeksema also took aim at the notion that a small airline can’t survive in the industry.
“People have been telling us that for 22-and-a-half years when we started on June 11, 1984 with two airplanes,” Hoekxema said.
