FlyAirtran
Well-known member
- Joined
- Oct 4, 2006
- Posts
- 84
http://www.startribune.com/business/13191901.html?page=2&c=y
NWA-Midwest deal is up in the air
The Department of Justice is scrutinizing the consumer effects of a Northwest-TPG Capital acquisition of Midwest Airlines. A decision is expected by Jan. 31.
By LIZ FEDOR, Star Tribune
Last update: January 6, 2008
Midwest Airlines executives said last summer that they expected to sell their carrier to Northwest Airlines and a private equity partner by the end of 2007, but the closing hasn't occurred because federal regulators are still examining how the deal would affect passengers.
After outbidding AirTran Airways for the Milwaukee-based carrier, Texas-based TPG Capital and Northwest are prepared to pay about $450 million for Midwest. While the parties have stressed that Northwest would be a passive investor with a 47 percent stake, the deal is structured so that Northwest would have the right to buy out TPG's interest. While TPG would turn the publicly traded airline into a private company, Northwest would not get a seat on the new board.
The U.S. Department of Justice asked the companies to provide a second round of data, which is allowing the federal government to do a detailed analysis of the markets served by Northwest and Midwest.
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.
"DOJ has apparently chosen to review the transaction as if it were a merger," said Ben Hirst, Northwest's senior vice president of corporate affairs and administration.
Hirst emphasized that Northwest has "made no decision as to whether or when to exercise our option" to buy TPG's majority stake.
Sheran, who recently chaired the antitrust section for the Minnesota State Bar Association, said the Justice Department is responsible for looking at "the reduction of competition when [market] concentrations increase."
In Milwaukee, Midwest had a 51 percent share of the market in 2006, while Northwest had the second-largest position with about 18 percent.
Aviation consultant Patrick Murphy said that Justice would be expected to look at overlapping routes where Northwest and Midwest have been competitors. Northwest is one of the big six network carriers in the United States. Midwest, with hubs in Milwaukee and Kansas City, serves more than 50 cities.
Because the deal gives Northwest the prerogative to acquire all of Midwest, Murphy said that regulators can assess the transaction "under the assumption that it could be a merger." Murphy previously dealt with airline competition issues as a U.S. Department of Transportation official.
In a recent interview, Northwest CEO Doug Steenland said, "We continue to believe that the deal will get approved." Steenland and Carol Skornicka, Midwest senior vice president and general counsel, both anticipate that the Justice Department will make a decision on the Midwest transaction by Jan. 31.
Northwest and TPG decided to submit a joint bid for Midwest after the carrier rebuffed several offers from AirTran, a growing low-fare carrier with a major hub in Atlanta. AirTran raised competition issues in the final days before Midwest's board selected TPG-Northwest as the winning bidder.
AirTran's CEO Bob Fornaro said back in August that Northwest bid for Midwest because Northwest "did not want a strong, low-cost carrier in their back yard."
He added, "If two carriers get together with a combined market share of 70 percent in Milwaukee, their track record says they'll raise prices."
In a white paper released in December, the American Antitrust Institute urged federal regulators to "fully consider" the effects of Northwest's buyout option "on restraining competition and potentially closing the door to entry in markets in which Northwest and Midwest could wield market power."
If Midwest is jointly owned by TPG and Northwest, Midwest's Skornicka said that Northwest and Midwest would remain competitors. It would be illegal for the two airlines to conspire to set prices, she said.
If Northwest bought TPG's share of Midwest, Skornicka said it "would hardly move the needle" on Northwest's market power. She described Midwest as a "very small airline" that has one-half of 1 percent of domestic airline capacity.
"There is plenty of opportunity for competition to come into Milwaukee," she said, noting that some expansions have occurred since the TPG-Northwest deal was announced.
Barry Bateman, airport director at General Mitchell International Airport in Milwaukee, said that AirTran increased its gates from two to four in late 2007 and expanded its daily flights from nine to 12. Last month Skybus Airlines, a low-fare carrier, started offering daily service between Milwaukee and Columbus, Ohio.
For the first 11 months of 2007, AirTran had a 6.1 percent market share in Milwaukee while Northwest's share was 13.2 percent.
During 2007, the Milwaukee airport increased the number of gates by a half dozen -- to 48 gates. Midwest now uses 23 of those gates, while Northwest flies out of six gates.
Northwest and Midwest were planning a code-share agreement before the Midwest board began weighing bids for Midwest. Northwest has code-share arrangements with Delta, Continental and others, which allow the carriers to jointly market certain flights and extend their route networks.
Historically, Northwest has had a major presence in Milwaukee. In 2003, Northwest reported that Milwaukee travelers had generated nearly $100 million in domestic revenue for it during 2002.
Northwest chose to become a passive investor with TPG because "we wanted to secure the code-share arrangement with Midwest, which would have clearly been lost if Midwest had been acquired by AirTran," Hirst said.
Northwest had done business before with TPG, formerly known as Texas Pacific Group, and managing partner David Bonderman.
In January 1998, Northwest struck a deal to buy Texas Pacific Group's shares in Continental Airlines and form a long-term alliance with Continental. The Texas-based airline chose that option over a potential merger with Delta.
The Justice Department gave its blessing to the Northwest-Continental alliance, but challenged the stock transaction. "They sued us and we had a court case, but we went ahead and bought the shares anyway," Steenland recalled. Ultimately, Northwest sold its shares back to Continental.
NWA-Midwest deal is up in the air
The Department of Justice is scrutinizing the consumer effects of a Northwest-TPG Capital acquisition of Midwest Airlines. A decision is expected by Jan. 31.
By LIZ FEDOR, Star Tribune
Last update: January 6, 2008
Midwest Airlines executives said last summer that they expected to sell their carrier to Northwest Airlines and a private equity partner by the end of 2007, but the closing hasn't occurred because federal regulators are still examining how the deal would affect passengers.
After outbidding AirTran Airways for the Milwaukee-based carrier, Texas-based TPG Capital and Northwest are prepared to pay about $450 million for Midwest. While the parties have stressed that Northwest would be a passive investor with a 47 percent stake, the deal is structured so that Northwest would have the right to buy out TPG's interest. While TPG would turn the publicly traded airline into a private company, Northwest would not get a seat on the new board.
The U.S. Department of Justice asked the companies to provide a second round of data, which is allowing the federal government to do a detailed analysis of the markets served by Northwest and Midwest.
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.
"DOJ has apparently chosen to review the transaction as if it were a merger," said Ben Hirst, Northwest's senior vice president of corporate affairs and administration.
Hirst emphasized that Northwest has "made no decision as to whether or when to exercise our option" to buy TPG's majority stake.
Sheran, who recently chaired the antitrust section for the Minnesota State Bar Association, said the Justice Department is responsible for looking at "the reduction of competition when [market] concentrations increase."
In Milwaukee, Midwest had a 51 percent share of the market in 2006, while Northwest had the second-largest position with about 18 percent.
Aviation consultant Patrick Murphy said that Justice would be expected to look at overlapping routes where Northwest and Midwest have been competitors. Northwest is one of the big six network carriers in the United States. Midwest, with hubs in Milwaukee and Kansas City, serves more than 50 cities.
Because the deal gives Northwest the prerogative to acquire all of Midwest, Murphy said that regulators can assess the transaction "under the assumption that it could be a merger." Murphy previously dealt with airline competition issues as a U.S. Department of Transportation official.
In a recent interview, Northwest CEO Doug Steenland said, "We continue to believe that the deal will get approved." Steenland and Carol Skornicka, Midwest senior vice president and general counsel, both anticipate that the Justice Department will make a decision on the Midwest transaction by Jan. 31.
Northwest and TPG decided to submit a joint bid for Midwest after the carrier rebuffed several offers from AirTran, a growing low-fare carrier with a major hub in Atlanta. AirTran raised competition issues in the final days before Midwest's board selected TPG-Northwest as the winning bidder.
AirTran's CEO Bob Fornaro said back in August that Northwest bid for Midwest because Northwest "did not want a strong, low-cost carrier in their back yard."
He added, "If two carriers get together with a combined market share of 70 percent in Milwaukee, their track record says they'll raise prices."
In a white paper released in December, the American Antitrust Institute urged federal regulators to "fully consider" the effects of Northwest's buyout option "on restraining competition and potentially closing the door to entry in markets in which Northwest and Midwest could wield market power."
If Midwest is jointly owned by TPG and Northwest, Midwest's Skornicka said that Northwest and Midwest would remain competitors. It would be illegal for the two airlines to conspire to set prices, she said.
If Northwest bought TPG's share of Midwest, Skornicka said it "would hardly move the needle" on Northwest's market power. She described Midwest as a "very small airline" that has one-half of 1 percent of domestic airline capacity.
"There is plenty of opportunity for competition to come into Milwaukee," she said, noting that some expansions have occurred since the TPG-Northwest deal was announced.
Barry Bateman, airport director at General Mitchell International Airport in Milwaukee, said that AirTran increased its gates from two to four in late 2007 and expanded its daily flights from nine to 12. Last month Skybus Airlines, a low-fare carrier, started offering daily service between Milwaukee and Columbus, Ohio.
For the first 11 months of 2007, AirTran had a 6.1 percent market share in Milwaukee while Northwest's share was 13.2 percent.
During 2007, the Milwaukee airport increased the number of gates by a half dozen -- to 48 gates. Midwest now uses 23 of those gates, while Northwest flies out of six gates.
Northwest and Midwest were planning a code-share agreement before the Midwest board began weighing bids for Midwest. Northwest has code-share arrangements with Delta, Continental and others, which allow the carriers to jointly market certain flights and extend their route networks.
Historically, Northwest has had a major presence in Milwaukee. In 2003, Northwest reported that Milwaukee travelers had generated nearly $100 million in domestic revenue for it during 2002.
Northwest chose to become a passive investor with TPG because "we wanted to secure the code-share arrangement with Midwest, which would have clearly been lost if Midwest had been acquired by AirTran," Hirst said.
Northwest had done business before with TPG, formerly known as Texas Pacific Group, and managing partner David Bonderman.
In January 1998, Northwest struck a deal to buy Texas Pacific Group's shares in Continental Airlines and form a long-term alliance with Continental. The Texas-based airline chose that option over a potential merger with Delta.
The Justice Department gave its blessing to the Northwest-Continental alliance, but challenged the stock transaction. "They sued us and we had a court case, but we went ahead and bought the shares anyway," Steenland recalled. Ultimately, Northwest sold its shares back to Continental.
Last edited:
