AirTran's Not-So-Hostile Takeover of Midwest Air

In the two weeks since Midwest Air's (MEH) most recent rejection, there has been very little in the way of material developments to the proposed transaction. It has essentially boiled down to a waiting game which really does not put AirTran (AAI) at any sort of disadvantage.

In fact, based on the Q1 earnings, it can be said that time is working in AAI's favor for the moment. MEH's numbers are less than thrilling, while AAI's appear to be improving steadily in terms of both earnings and operations (traffic). While the data is not terribly surprising, it does seem to reinforce the concept that a combination is in the best interests of both companies under current conditions. MEH is simply running out of reasons to continue to completely reject AAI's increased offers.

Nevertheless, MEH continues to take every opportunity to criticize AAI's proposal, including continually publicizing its "Save the Cookie" website/campaign in hopes of appealing to the emotional side of the issues involved. While cute and/or clever, this approach by MEH tends to overlook the broader, long-term aspects of the situation, not the least of which are the very real benefits of an MEH/AAI combination. At some point, it will very likely be realized that MEH is simply diverting attention from the critical issues involving the company's future.

Also of some interest is this breakdown from Airliners.net of the wording in the last revised proxy statement filed by AAI on April 20. The relevance to the overall chances of the transaction actually being completed are small, but the information itself is extremely interesting and could have some impact on the MEH annual shareholder meeting in June.

May should be a fairly interesting month where this proposed transaction is concerned. Both companies can be expected to use the press to make their arguments, and it could become ugly depending on MEH's posture. AAI has remained relatively non-hostile throughout this "hostile" acquisition attempt, but this could very easily change if a significant level of MEH shareholders begin to voice concerns. At some point, a legitimately hostile approach by AAI may be the most effective course of action.

We continue to expect AAI to pursue this deal relentlessly and will most likely succeed in convincing MEH into entering a formal agreement within the next two to three months.

Disclosure: We have no positions of any kind, in any security. We are a completely neutral source of research and analysis.