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Midwest Air Spurns AirTran, Accepts Bid from TPG

Midwest Air Group, which had been fending off hostile suitor AirTran Holdings, on Friday said it accepted a higher bid of about $450 million from private equity firm TPG Capital and Northwest Airlines.

TPG's $17-per-share offer, which was raised on Thursday from $16 per share, includes a passive investment by No 5 U.S. airline Northwest, which partners with regional carrier Midwest.

AirTran , which had wanted to combine Midwest's hubs in Milwaukee and Kansas City with its presence on the East Coast, ended its dogged pursuit of Midwest, which began in October.

"We accept the Midwest board's decision," said AirTran's Chief Executive Joe Leonard in a statement.

During AirTran's 10-month pursuit of Midwest, it raised its bid four times and successfully got three members elected to Midwest's board of directors. But in the end, the No. 10 U.S. carrier was unwilling to match TPG's $17-a-share, all-cash offer.

The offer, which includes a passive investment from Midwest partner Northwest Airlines Corp., was raised from $16 a share after AirTran got back in the running on Tuesday by increasing its cash and stock bid. The latest AirTran offer was worth $16.04, based on Thursday's closing stock price.

TPG's offer represents a nearly 16 percent premium to Midwest's closing share price of $14.70 on Thursday on the American Stock Exchange.

The transaction is not subject to financing conditions, Midwest said -- a key consideration given recent credit market turmoil that has created bumpy conditions for other private equity deals.

TPG would acquire Midwest , a regional carrier known for fresh-baked cookies on board, which is coming off a rough second quarter, when net profit tumbled 44 percent because of weak fares and higher fuel expenses.

Richard Schifter, partner at TPG, said he hopes the firm's industry experience, together with an expanded alliance with Northwest, will lead to a bigger and better Midwest.

TPG has a history of investing in airlines, including approaches earlier this year in the European market. Northwest , which has not disclosed the value of the investment it plans to make under TPG's offer for Midwest, had said although it had no plans to participate in management or control of Midwest, it would continue a code-sharing agreement and could explore cost-reduction measures such as joint fuel purchasing.

For its part, low-cost carrier AirTran, which is based in Orlando, Florida, and operates a hub in Atlanta, said it wasn't looking for another target.

"AirTran doesn't need to merge with any other carrier to achieve our business goals," Leonard said. AirTran said it would continue its strategy of adding new markets and planes and offering low fares.

AirTran, had earlier said that Northwest's involvement in TPG's offer could raise antitrust concerns, but the private equity firm said it did not expect to face any such hurdles.

Midwest said its sale to TPG is expected to close in the fourth quarter, subject to shareholder and regulatory approvals.