Here’s an interesting puzzle of priorities. AirTrain airlines, a discount carrier based in Atlanta is attempting a hostile takeover of Midwest Airlines, a premium-service carrier based in Milwaukee. The story is getting downright fascinating.
AirTran, the reincarnation of ValuJet, is known for cheap fares, but not a whole lot else. Midwest, although a far cry from what it used to be, is still know as “the best care in the air” offering first class seating on most of its flights, along with their trademark baked-in-flight chocolate chip cookies. Mmmm…
AirTran has been trying for months to take over Midwest, citing fleet commonality and complimentary route structure as well as new destinations and low fares among the benefits it purports to be bringing to stakeholders. Midwest management and employees have been fighting tooth and nail to resist the takeover. Midwest customers and many members of the Milwaukee business community are also up in arms for fear of being stuck with what they see as a second-rate airline, bad for business and community spirit, not to mention local jobs.
Midwest stock is up from $8 to $15 since the take over efforts began, and AirTran recently announced they’ve managed to get the support of 57% of Midwest Shareholders (Midwest dismisses this as a ‘straw poll’). So is this a no-brainer for sharholders? What’s slowing things down? And what would you do?
Takeovers like this sometimes conjure emotion that would make Milton Friedman roll over in his grave. But is there more to the equation than emotion and community pride? And what’s the value of that anyway?
Having flown on both airlines, there’s no question that Midwest offers a vastly superior product. So superior in fact that I’ve often paid as much as $50 more per ticket to fly them since I’m convinced it’s worth it as are many other loyal customers. But are they really good enough that they make the difference in successful business relationships in Milwaukee? Does a crummy flight to your meeting make or break it? Either way, if I were a Midwest shareholder, it would take some serious convincing to turn down nearly double my money in a matter of months, and based on recent news, it sounds like the sale is tipping in AirTran’s favor. But there’s one more catch – Wisconsin law allows for a special provision to prevent hostile takeovers. The so-called “poison pill” plan allows a company based in WI to dump shares onto the market in event of a hostile takeover to spoil the suitor’s plans. This battle has gotten heated enough that it might come down to such a measure. It’s going to be fun to watch.
The additional business argument against the takeover is this: $15 a share is way too much. Once the takeover is complete, the price will crash. The customer base of Midwest is loyal because it is a premium product. Once the premium is gone, AirTran will be viewed as just another cut-rate offering little advantage over competitors. AirTrain will dry up in the new markets and no one, except those who dumped their shares at the peak will be any better off. In fact many will be worse off.
Is this an unavoidable symptom of short-term thinking? Would taking the poison pill option be better for most people in the long term? Including shareholders? It’s a tough call!
Read more debating here. Read Midwest’s Take on the matter here. And AirTran’s Here.