AirTran Lifts Midwest Offer

The deal would now be for $15 a share.
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AirTran

(AAI)

pressed ahead Monday with its hostile bid for

Midwest

(MEH)

, raising its offer for the third time and extending the deadline.

The latest offer, valued at $389 million, is to pay $15 in cash and stock for each Midwest share. Midwest shares were recently trading at $14.25, up 5.5%.

AirTran moved after Midwest announced Friday that its annual meeting will take place on May 23. At the meeting, votes will be tabulated for nominees to fill three open seats on the airline's board. Both AirTran and Midwest have proposed slates.

"We are presenting this substantially enhanced offer now in order to give their board and management time to consider it and enter into discussions with us prior to (the annual meeting)," said AirTran chairman Joe Leonard, in a prepared statement.

"If we are not able to enter into discussions with Midwest prior to the annual meeting, Midwest shareholders will have the opportunity, at that time, to control their own destiny by determining whether the existing board of directors is really serving the best interests of shareholders," he continued.

Midwest spokeswoman Carol Skornicka said directors will make a recommendation on the latest offer by April 13. The board has asked shareholders to refrain from accepting the offer prior to that date, she said.

Some in the airline industry believe that AirTran's quest will prove unsuccessful. Last month, JPMorgan analyst Jamie Baker said the effort is "ultimately doomed to fail.

"We question the feasibility of hostile transactions, particularly in this industry," Baker wrote. "It sure didn't work for

US Airways

(LCC)

, and Wisconsin law gives Midwest a nearly bulletproof antitakeover defense."

In January, US Airways withdrew its hostile bid for

Delta

(DALRQ)

. "Our experience with Delta makes us realize that hostile deals are hard to get done," US Airways president Scott Kirby told reporters last month, at the airline's annual media day.

Leonard said AirTran firmly believes "in the underlying value and benefits of combining these companies." AirTran envisions a national low-cost carrier with a fleet of 245 planes and hubs in Atlanta, Milwaukee and Kansas City.

New York hedge fund Octavian Master Fund, which holds more than 5% of Midwest, has encouraged the carrier to negotiate if AirTran raised its bid. In a letter released last week, Octavian chief executive Richard Hurowitz wrote that a merger "makes enormous strategic sense."

If the bid were materially increased, Hurowitz wrote, "we would strongly encourage and expect the board and management team of Midwest to abide by their fiduciary duties and immediately enter into good faith negotiations to effectuate a transaction."

AirTran unveiled a $290 million bid for Midwest on Dec. 13, offering to buy its shares for $11.25 in cash and stock. It upped the bid to $345 million, or $13.25 a share, in January.