YX802

I have often wondered what made Midwest look so attractive to TPG. It's obvious NW only wanted a piece of the action as a defensive move.

iahphx

Still, you have to assume TPG is in the business of buying undervalued assets, not overvalued ones. For a little more than what TPG is paying for MEH, they could buy the much bigger -- and much more financially successful -- AirTran. "Real" airlines, like US Airways are only worth twice as much (one analyst this week said that the US Airways Shuttle is worth a billion dollars, the entire airline's market cap!).

I would submit that no investor would now want to pay what TPG is "on the hook" for in this deal. Which makes me wonder if they'll try to figure a way out of the deal.

dhuey

Remember Chem 101? TPG is a catalyst. It helps make a compound that won't react to AirTranium. It's being paid for that service in a confidential agreement you and I can't see. DOJ has seen it, though, and I suspect is smells like rotten crab cakes to them.

Tim34

Federal antitrust regulators apparently are reviewing Northwest's involvement in a deal to buy Midwest Airlines as a potential merger, The Minneapolis Star Tribune (free registration) reports. That's likely behind the delayed closing of the deal, which has happened slower than the parties had expected.

The Department of Justice asked the parties to provide additional data, which the Star Tribune says "is allowing the federal government to do a detailed analysis of the markets served by Northwest and Midwest." The federal scrutiny comes after TPG Capital –- backed by a 47% stake from NWA -– outbid low-cost carrier AirTran in a deal to acquire Milwaukee-based Midwest.

NWA has stressed it will be a "passive investor" with no management involvement, but the deal does allow NWA an option to eventually buy out TPG's investment if TPG sells. The Star Tribune writes "the fact that the Justice Department sought voluminous information on pricing and schedules shows interest in the deal's potential 'anticompetitive effects,' said Tom Sheran, an attorney with Moss & Barnett, Minneapolis. In many acquisitions, there is no requirement to provide a second set of data, he said." Ben Hirst, Northwest's senior vice president of corporate affairs and administration, tells the paper that the "DOJ has apparently chosen to review the transaction as if it were a merger." He also said that NWA has "made no decision as to whether or when to exercise our option" to buy TPG's majority stake.

Aviation consultant Patrick Murphy tells the Star Tribune that antitrust regulators can assess the deal "under the assumption that it could be a merger" since NWA will have an ownership option. Still, NWA CEO Doug Steenland tells the Star Tribune "we continue to believe that the deal will get approved." Officials from both NWA and Midwest say they expect the deal to close by Jan. 31. As for NWA's potential ownership option, Midwest senior vice president and general counsel Carol Skornicka says a combination of the carriers "would hardly move the needle" on market share concerns. The Star Tribune says Skornicka describes Midwest as a "very small airline" that has one-half of 1% of U.S. airline capacity.

flyYX

I think Carol missed the point here. Midwest is the dominate carrier at MKE. It doesn't matter what their share of all the air traffic in the U.S. is. MKE is at issue and anticompetitive practices are of concern. NWA wants to protect their so called turf. If NWA could make MKE go away, I think they would. The prospect of having a larger airline than Midwest with a hub operation in their upper midwest territory scares them.

spampurse

That's cute.

However the ironic thing is that people are starting to come around to the viewpoint that AirTran supporters have had all along that a NW/TPG merger is not the savior of YX and that without a minor miracle YX will be ancient history in a matter of years (i.e. Jay Sorensen's article in the MKE paper yesterday). Of course now it is too late. With fuel at $100/barrel I doubt that FL would touch YX with a 10 foot pole and are thanking their lucky stars that they got outbid.

This is going to be very interesting to see play out, but in the end I still think there are very few good outcomes for YX. Its kind of like watching a puppy playing in busy street, blissfully unaware of the sad inevitability that awaits him.

hazelrah

This is wholly inaccurate; in fact TPG specializes in acquiring distressed companies (and IMO Midwest qualifies as such) and turning them around.

There are many changes in store for Midwest.

Global_Hi_Flyer

Having dealt with DOJ on M&A issues in federally regulated businesses, I can tell you that they focus on an assumption that the markets remain relatively static. Meaning that there is little consideration of new entrants in specific market segments.

Since deregulation, there are few federal barriers to entry for airlines that want to enter or expand in a market like MKE. Likewise (and in particular) changes in service levels or types of aircraft don't really enter the equation - even though they might be important to the passenger. Unless something has changed, DOJ will look more at the markets where YX and NW are directly competitive, and not really pay much attention to the fact that YX (or NW) can withdraw from those markets or change aircraft configuration easily.

In the end, DOJ does have to respond to the political elements in Washington. So, if another carrier happens to have lobbied a congresscritter that's on an aviation or commerce committee, DOJ must be prepared to respond.

I don't think this deal gets blown up over one market - like MKE....

iahphx

It's a shame the Star Tribune article didn't touch on the "jeez, does NW and TPG really want to go through with this now" angle.

Otherwise, what may eventually "save" this deal -- at least as far as the DOJ is concerned -- are the OTHER mergers likely to come down the pike this year. All of those big mergers would be "anticompetitive" in the sense that they will be premised on reducing capacity and therefore raising fares and creating sustainable profitability. Like it would be hard to turn down NW/Midwest and then approve DL/UA!

Of course, the reason the DOJ dislikes this deal is that it reeks of bad motive. I've said that from the start. NW doesn't want Midwest to improve its profitability -- it wants it to keep it out of the hands of someone who might do more with it. It's perhaps fitting that, if they win, they'll still lose by massively overpaying for the assets.

YX802

Who chairs the Senate Subcommittee on Anti-Trust? None other than Wisconsin's own Sen. Herb Kohl.

Tim34

Those who support the deal with TPG like you have to be aware that (according to the article I cited) the feds are treating this deal like it is a merger between Midwest and Northwest. You can't have it both ways. You have to accept the fact that it is a very real and strong possibility that NWA will own Midwest and be okay with it. You can't like aspects of a deal and ignore others. So I ask you the following questions, 1) Are you okay with the possibility that NWA will eventually own Midwest? 2) What are the benefits of NWA eventually owning Midwest as opposed to the costs for Airtran's plan?

flyYX

To me DLH is evidence enough that NWA is not taking a hands off approach to Midwest when it comes to direct competition with them. Officials at DLH were pleased with the performace of Midwest at DLH. Midwest even confirmed a month before they pulled the plug that the route was doing well. They could have waited until after the TPG/NWA merger with Midwest was approved... but I guess NWA was pressuring Midwest to get out asap. I am disappointed to say the least.

BlueHorseShoe2000

Midwest officials never said that the route was doing well. What they said was that the route got off to a promising start, but passenger volumes and yields began to decline during the late summer and early fall. Based on loads (which were below break-even levels according to several articles I saw), poor advance bookings, low amounts of O&D traffic, and the higher cost of operating the FRJ, Midwest decided to pull the plug on the route. DLH did not show much potential and was therefore axed. Perhaps DLH will come back one day, but Midwest is under no obligation to serve a money losing route. They're also not the first airline to make a quick exit from DLH, either.

If Northwest really wanted to eliminate direct competion, they'd ask Midwest to pull the plug on MKE-MSP, which is a higher yield business route. There's a lot more money to be made on that run than in DLH.

I'm sorry, but there's just no credible evidence to suggest Northwest is already pulling the strings at Mdwest. The DOJ hasn't even approved the deal yet and some people are already acting like Northwest is managing the day-to-day operations at Midwest.

Global_Hi_Flyer

Or, thought of another way, if DOJ approves it now, it will be very easy for NW to consummate... and given the likelihood of change in political party running the administration, it might well be setting the stage for a merger sooner rather than later.

I repeat again, NW needs to replace those DC-9s.

truths88

25 B717's are not going to replace "those 9's"

Boy, doesn't anyone believe that there is a chance that NW needs a strong Midwest airlines in MKE? I think they realize they are not able to maintain a hub like they once did, so why continue to fight it? Invest in a company who has a great track record in MKE and has kick our $## twice in the last twenty years.

As far as Mr Sorenson, does anyone know what his track record is with the company? He worked for the company for several years, along with his wife. She was director of Revenue management. Does anyone have some insight as to why they are no longer there?

And IAH, do you have some proof the DOJ dislikes the deal? Are they in the business of deciding a merger/acquisition on whether they like it or not? I think not.

DLH was a freaking dog and was not a factor in this whole deal.

If TPG bought a piece of the company, I have a feeling they knew that there could be some significant challenges in the future and are in the process of working with the company to rally to those challenges.