brokenwrench
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- Oct 27, 2006
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Lopsided mergers may become new trend
Friday, Aug 17, 2007
Posted on Tue, Aug. 14, 2007
Lopsided mergers may become new trend
By TREBOR BANSTETTER
Star-Telegram Staff Writer
For years, the airline industry has been bracing for a megamerger that would join two aviation Goliaths.
But consolidation is more likely through deals that partner Goliath with David, analysts say.
The latest indication is a proposed buyout of Midwest Air Group, a small Milwaukee carrier, by TPG Capital. The TPG group includes Northwest Airlines as an investor. The deal, accepted late Sunday by Midwest's board, squelched a competing bid from AirTran Airways, which had hoped to use the merger to build a hub in Milwaukee.
TPG, which has offices in Fort Worth, offered $16 per share for Midwest, which beat AirTran's proposal, $15.75 per share. Northwest says it will not participate in managing the smaller airline, although it may take part in deals like joint purchases of fuel and will continue a schedule-sharing arrangement with Midwest.
The Midwest proposal "does highlight our view that deals between competing [major] carriers may not be the most likely outcome" of industry consolidation, Jamie Baker, a JPMorgan analyst, wrote in a note to investors Monday. "We envision deals between large and small," such as Delta Air Lines with JetBlue Airways or Alaska Airlines.
"Such deals are simply more likely to curry requisite regulatory and labor favor, hence are the most likely to be pulled off," Baker said.
Some observers have hoped that a giant merger, such as American Airlines buying Northwest or United, could help reduce the industry's intense competition and remove excess airline capacity. But after a proposed deal by US Airways to buy Delta collapsed this year, many said antitrust and labor concerns could prevent a huge deal from coming to fruition anytime soon.
Large carriers may, however, be interested in smaller ones, particularly profitable discount airlines. And private-equity firms like TPG could help ease the transition for smaller mergers, said Stuart Klaskin, an airline consultant with Klaskin, Kushner and Co. in Coral Gables, Fla.
Instead of buying a smaller airline outright, teaming with an equity buyer to take a carrier private minimizes issues like integrating labor groups and aircraft fleets. At the same time, it sets the stage for the larger airline to eventually swallow the smaller.
"At some point the equity buyer wants to cash out, so they have an obvious buyer ready," Klaskin said. "It's almost like a virtual merger."
The Midwest deal requires approval by shareholders and regulators. AirTran officials have said they don't plan to make a counteroffer.
The TPG proposal caps a wrenching, lengthy battle for Midwest, which is best known for perks like serving freshly baked cookies during flights. AirTran saw a buyout as a way to establish a Midwestern hub to complement its East Coast service, with a hub in Atlanta.
Before the Midwest proposal, AirTran had tried to buy the gates at Chicago Midway Airport from struggling carrier ATA. That deal fell apart when Southwest Airlines, based in Dallas, outbid AirTran.
But Midwest fought AirTran's advances, saying it preferred to remain independent. Last month, Midwest officials entered into negotiations with AirTran but said they were talking to other parties as well.
The TPG deal would be worth more than $400 million. If it were completed, it would keep a potentially strong competitor from landing near Northwest's hubs in Minneapolis and Detroit.
"Northwest felt like they had to protect their market in the upper Midwest," Klaskin said.
Now, he said, AirTran may get a buyout proposal.
"I think the major air- lines, especially since they're out of bankruptcy, are going to seriously eye AirTran and these other smaller guys," Klaskin said. "They know they can't get two giants together, but something smaller will look a lot better to the regulators."
SkyTalk
Best of our blog, at star-telegram.com
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Friday, Aug 17, 2007
Posted on Tue, Aug. 14, 2007
Lopsided mergers may become new trend
By TREBOR BANSTETTER
Star-Telegram Staff Writer
For years, the airline industry has been bracing for a megamerger that would join two aviation Goliaths.
But consolidation is more likely through deals that partner Goliath with David, analysts say.
The latest indication is a proposed buyout of Midwest Air Group, a small Milwaukee carrier, by TPG Capital. The TPG group includes Northwest Airlines as an investor. The deal, accepted late Sunday by Midwest's board, squelched a competing bid from AirTran Airways, which had hoped to use the merger to build a hub in Milwaukee.
TPG, which has offices in Fort Worth, offered $16 per share for Midwest, which beat AirTran's proposal, $15.75 per share. Northwest says it will not participate in managing the smaller airline, although it may take part in deals like joint purchases of fuel and will continue a schedule-sharing arrangement with Midwest.
The Midwest proposal "does highlight our view that deals between competing [major] carriers may not be the most likely outcome" of industry consolidation, Jamie Baker, a JPMorgan analyst, wrote in a note to investors Monday. "We envision deals between large and small," such as Delta Air Lines with JetBlue Airways or Alaska Airlines.
"Such deals are simply more likely to curry requisite regulatory and labor favor, hence are the most likely to be pulled off," Baker said.
Some observers have hoped that a giant merger, such as American Airlines buying Northwest or United, could help reduce the industry's intense competition and remove excess airline capacity. But after a proposed deal by US Airways to buy Delta collapsed this year, many said antitrust and labor concerns could prevent a huge deal from coming to fruition anytime soon.
Large carriers may, however, be interested in smaller ones, particularly profitable discount airlines. And private-equity firms like TPG could help ease the transition for smaller mergers, said Stuart Klaskin, an airline consultant with Klaskin, Kushner and Co. in Coral Gables, Fla.
Instead of buying a smaller airline outright, teaming with an equity buyer to take a carrier private minimizes issues like integrating labor groups and aircraft fleets. At the same time, it sets the stage for the larger airline to eventually swallow the smaller.
"At some point the equity buyer wants to cash out, so they have an obvious buyer ready," Klaskin said. "It's almost like a virtual merger."
The Midwest deal requires approval by shareholders and regulators. AirTran officials have said they don't plan to make a counteroffer.
The TPG proposal caps a wrenching, lengthy battle for Midwest, which is best known for perks like serving freshly baked cookies during flights. AirTran saw a buyout as a way to establish a Midwestern hub to complement its East Coast service, with a hub in Atlanta.
Before the Midwest proposal, AirTran had tried to buy the gates at Chicago Midway Airport from struggling carrier ATA. That deal fell apart when Southwest Airlines, based in Dallas, outbid AirTran.
But Midwest fought AirTran's advances, saying it preferred to remain independent. Last month, Midwest officials entered into negotiations with AirTran but said they were talking to other parties as well.
The TPG deal would be worth more than $400 million. If it were completed, it would keep a potentially strong competitor from landing near Northwest's hubs in Minneapolis and Detroit.
"Northwest felt like they had to protect their market in the upper Midwest," Klaskin said.
Now, he said, AirTran may get a buyout proposal.
"I think the major air- lines, especially since they're out of bankruptcy, are going to seriously eye AirTran and these other smaller guys," Klaskin said. "They know they can't get two giants together, but something smaller will look a lot better to the regulators."
SkyTalk
Best of our blog, at star-telegram.com
Allied Pilots co-founder dies
AA StickerGate pilot speaks out
Dispatcher talks back on at American
New York's recently enacted passenger-rights law might be short-lived
