AirTran raises Midwest bid to $345 million

NEW YORK (Reuters) - AirTran Holdings Inc. (AAI.N) raised its bid for Midwest Air Group Inc. (MEH.A) by 19 percent to $345 million on Thursday, making the offer directly to shareholders and putting pressure on Midwest Air's management.

The parent of discount carrier AirTran Airways, the No. 10 U.S. carrier, made the move after Midwest Air last month rejected the initial offer of $290 million, saying the bid undervalued it.

Midwest on Wednesday put forth a plan to add routes and update its fleet as it seeks to convince shareholders it should remain independent.

Under the revised bid, AirTran is offering to pay $13.25 per Midwest share, including $6.625 in cash and 0.05884 shares of the airline's common stock.

The new offer represents a premium of 61 percent over the 30-day average closing price of Midwest common stock at the time of AirTran's initial $11.25-per-share bid. Shares closed at $12.90 on the American Stock Exchange on Wednesday.

The increased offer by AirTran also follows on the heels of an increased offer by US Airways Group Inc. (LCC.N) for Delta Air Lines Inc. (DALRQ.PK), as consolidation in the airline industry heats up.

AirTran is now taking its bid directly to Midwest Air shareholders with an exchange offer, after failing to make headway with the company's board since initially proposing a deal in October.

"You gave us no choice, but to bring our offer directly to the owners of the company," AirTran Chief Executive Joseph Leonard said in a letter to Midwest Air's board.

The offer to Midwest Air's shareholders is due to expire on February 8, but could be extended. It is conditional on a majority of Midwest Air shares and a lifting of its poison pill provisions.

"We are willing to take this step because we fully believe that a combined AirTran and Midwest ... will generate the value needed to justify our increased offer," Leonard said.

AirTran expects the deal to be add to earnings in the first full year following the close and boost earnings significantly thereafter.

Milwaukee-based Midwest Air was not immediately available to comment.

AirTran has said that the combination would create a low-cost airline with revenue of about $3 billion in 2007 and generate more than $60 million in estimated cost savings.

(Additional reporting by Robert MacMillan)