Updated from 8:45 a.m. ESTAirTran ( AAI) raised its hostile bid for Midwest Air Group ( MEH) to $345 million and started an effort to acquire the carrier's shares. The offer is for $13.25 a share, made up of $6.625 in cash and 0.5884 AirTran shares, with a deadline of Feb. 8. The valuation is based on AirTran's Wednesday closing price of $11.92. Following the new proposal, Midwest's shares rose 50 cents, or 3.9%, to $13.40. "We wanted to work with management," AirTran CEO Joe Leonard said on a conference call Thursday. "But quite frankly, we've been stonewalled for over a year now." Leonard said the acquisition would enable AirTran to establish a nationwide low-fare carrier with 245 modern jets, a low cost structure and hubs in Atlanta, Milwaukee and Kansas City. It could "compete regardless of what happens with airline consolidation," he said. AirTran unveiled a $290 million bid for Midwest on Dec. 13, offering to buy its shares for $11.25 in cash and stock. To an extent, its takeover effort is moving in parallel with US Airways' ( LCC) unfriendly bid for Delta ( DALRQ), which was revealed Nov. 15. On Wednesday, US Airways upped its bid for the carrier and set a Feb. 1 deadline for creditors to show support. Like Delta, Midwest has firmly rejected every approach by its suitor, saying its own business plan promises continuing growth while enhancing profitability and maintaining its independence.
In a filling with the Securities and Exchange Commission, Midwest said its board last month rejected the earlier AirTran offer because it "significantly undervalued Midwest and "did not reflect the long-term opportunity inherent in its strategic growth plan." The company also said its strategic plan offers superior value to shareholders while "remaining true to Midwest's commitment to customer service excellence." Midwest would increase capacity by 15% this year and 10% over the next three years, improving profitability while building service. Leonard called that plan "very, very weak" and "somewhat bizarre." He said Midwest continues to fly aging MD-80s and 50-seat regional jets. "The service offering is somewhat schizophrenic," he said. Midwest also operates 25 Boeing 717s. AirTran President Bob Fornaro said Midwest survives because Milwaukee is underserved. "Competition has abandoned the market, but it will come back,
and their numbers will go down very quickly," he said. AirTran's exchange offer represents the first step in its plan to acquire all of Midwest's shares. After completing the offer, AirTran would convert all remaining Midwest shares to the right to receive the same package now on the table.