Shareholder watchdog backs AirTran's hostile bid

AirTran Airways' hostile takeover bid for Midwest Air got a boost Monday when a corporate governance watchdog backed the effort.

Institutional Shareholder Services (ISS) recommended Midwest shareholders vote for three AirTran candidates seeking election to Midwest's board of directors at its June 14 annual meeting.

"Three dissident nominees on Midwest's board may help a more objective evaluation of the company's strategic alternatives," the ISS reports said. "While we recognize that the dissident nominees may represent the platform with a bias towards a merger . . . this concern is outweighed by the need to exhibit a willingness to explore strategic alternatives that would increase shareholder value in light of the market events surrounding the AirTran offer."

AirTran has been seeking to buy Midwest since 2005 and launched a hostile takeover bid in December. AirTran has twice increased its offer to $389 million or $15 a share in cash and stock. More than 56 percent of Midwest shareholders backed AirTran's tender offer on May 16, but Wisconsin law gives Midwest the power to block hostile takeovers.

AirTran is seeking a hub outside Atlanta, where two-thirds of its flights now originate. Midwest is within easy driving distance of Chicago's northern suburbs, it has few overlapping routes and operates Boeing 717s — the same planes that make up the backbone of AirTran's fleet.

Midwest has rejected AirTran's overtures and managers believe their stand-alone growth plan will provide better returns for shareholders and has urged shareholders to reject AirTran.

ISS faulted Midwest for having almost no turnover in its board. Directors at the Milwaukee-based carrier have served an average of 14 years, and the company's chairman and CEO Tim Hoeksema has been in the top job 23 years.

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