The board of directors of Midwest Airlines' holding company will meet today to consider the two offers on the table to, in essence, buy the company.
One, from TPG, a consortium which includes passive minority investment from Northwest Airlines, offers $16 per share in cash.
The other, a stab in the dark proposal from AirTran, which on Sunday vowed it was out of the bidding, is a mixture of cash and AirTran stock which was valued at $16.25 per share when it was made but, as of last night, is now only worth $15.98 per share. That volatility alone suggests that AirTran's offer isn't the best.
The proposals, from what we can tell, are vastly dissimilar in other ways.
AirTran essentially wants to gut Midwest Airlines but use its planes and gates to expand its so-called "low cost carrier" strategy at Milwaukee and Kansas City. (It' "so-called 'low cost carrier'" because AirTran's fares aren't always the cheapest.)
TPG apparently plans to build on the present Midwest business model.
At the end of the day, the decision comes down to what's best for Midwest shareholders. On that basis, the TPG all cash offer smokes AirTran's for most investors.
The all-cash offer means Midwest shareholders are free to immediately invest 100% of the proceeds into other vehicles. The AirTran deal would require liquidation (and payment of commission to do so) of the AirTran stock at whatever value the stock may have. Bottom line: a bird in the hand is better than one in the bush.
The performance record of the two companies is also something to consider.
TPG helped nurse Continental Airlines into a profitable carrier. AirTran is really the old ValuJet, the startup carrier which was plagued by a horrific safety record to the extent that ValuJet did a "reverse merger" with a smaller carrier to shed itself of the ValuJet moniker. Since then AirTran has expanded its fleet and has numerous Boering 737-700 planes on order.
One troubling aspect with AirTran has been its spotty record in Milwaukee, its present "E" concourse gates still vacant much of the time. AirTran would have had more credibility had it expanded service at Milwaukee, which it could have done and still can, and should, do.
AirTran also seems to delight in bashing Midwest's business model but the present day analysts forget that Midwest, prior to September 11, 2001, had 14 consecutive years of profitability at a time when many other carriers were hemmoraging red ink. A recent post 9/11 attempt by Northwest Airlines to kick Midwest out of the box didn't work.
The Midwest directors have a duty to consider what's in the best interests of the shareholders and the company. Midwest has survived as a somewhat contrarian company and the best interests of the shareholders and company are best served by an owner intent on growing the company, not dismantling it. That kicks AirTran down the stairs and out the door, hopefully for good.