The board of directors of Midwest Air Group Inc. found an 11th-hour private equity partner to take ownership of the company and fend off a hostile takeover bid by AirTran Holdings Inc.

However, the newest proposal is not likely to be the final chapter of the story for the Oak Creek-based parent company of Midwest Airlines.

TPG Capital L.P. announced late Sunday night that it has agreed to pay $16 per share for Midwest. That all-cash offer trumped AirTran's final bid of $15.75 per share. AirTran's offer would have included only $9.50 in cash, and the remainder would have been in stock.

TPG Capital and the Midwest board plan to negotiate the final terms of their negotiations by Wednesday.

The sale to TPG would effectively mean that Midwest will keep its headquarters in Oak Creek, will keep its name and fresh-baked cookie brand and will keep its management team intact – for now. All of those elements could have been lost had Midwest been acquired by AirTran.

One remarkable aspect of the late-breaking deal is that the Midwest board's decision to accept the TPG Capital offer over AirTran's bid was unanimous. Three of Midwest's board members - John Albertine, Jeffrey Erickson and Charles Kalmbach - recently joined the Midwest board after being nominated by AirTran.

Sources close to the negotiations said AirTran's Orlando, Fla.-based leadership team was shocked that even its three hand-picked Midwest board members voted to accept the TPG Capital offer.

Speaking about the board members, Carol Skornicka, senior vice president, general counsel and secretary of Midwest, told SBT, "The AirTran offer had a lot of uncertainty. It was unanimous. They did their job. They were aware of their fiduciary obligations to shareholders."

TPG Capital, also known as Texas Pacific Group, is based in Fort Worth, Texas. The private equity investment firm was founded by David Bonderman, James Coulter and William S. Price III in 1992. The company has a track record of investments in the airline industry, as it has owned - and has sold - interests in Continental Airlines and America West. TPG Capital continues to own shares in Ryanair and Sabre. TPG Capital also has acquired stakes in a diverse set of companies in other industries, including Seagate Technology, ON Semiconductor, Burger King, Ducati, J. Crew, Petco and Metro-Goldwyn-Mayer.

TPG Capital is one of the most active private equity groups in the world. Earlier this year. TPG Capital announced plans to partner with Goldman Sachs to purchase Alltel Wireless for $27 billion and to partner with Silver Lake Partners to purchase Avaya for $8 billion.

The Midwest transaction would be financed through contributions from TPG Partners V L.P., a $15.3 billion managed fund of committed equity capital.

In a letter to the Midwest board, TPG Capital partner Richard Schifter said, "In addition to providing more certain value, an acquisition by TPG would permit the company to continue its rich legacy as a leading provider of customer oriented quality air service. Our acquisition would provide for greater stability and prospects for all of the Company's important constituencies including customers, employees and the greater Milwaukee and Kansas City metropolitan areas. We have been very impressed with your management team and are confident in its ability to maintain the company's reputation of excellent service, while at the same time running a profitable airline."

Ultimately, Midwest's shareholders will vote on TPG Capital's bid.

Presuming the offer is accepted, Northwest Airlines Inc. will be a minority partner with TPG Capital and will have a 40-percent share of ownership in Midwest. However, Northwest said it will not participate in the management or control of Midwest. The existing codeshare agreement between Northwest and Midwest Airlines will remain in place, and the two airlines will explore cost reduction activities such as joint fuel purchasing.

Northwest needs to keep some distance from the management of Midwest to appease any antitrust concerns the U.S. Department of Justice may have about the agreement.

The deal will effectively bring Midwest and Northwest, the two most dominant airlines in the Milwaukee market, under one corporate umbrella, which is not likely to generate any new airfare price competition in the market. With the acquisition, Northwest effectively stops AirTran from forming a competitive hub in Milwaukee.

However, Skronicka said the Midwest board has been told by several legal firms that the deal will pass federal antitrust reviews.

"The board concluded that it wouldn't be an obstacle," she said.
In a prepared statement after his company walked away from the Midwest table, Joseph Leonard, chief executive officer of AirTran, said, "The Midwest board has chosen to ignore the overwhelming majority of shareholders' wishes to merge with AirTran, a partner with whom Midwest could have grown and become a national carrier, including our commitment to provide employment protection and more jobs for its employees and more choices for its customers. Instead, the Midwest board has chosen a path that will benefit current senior management by selling out to a private equity firm and a so-called 'passive' investor (Northwest) whose involvement will surely raise antitrust concerns, casting doubt for shareholders on whether a transaction can, in fact, close. Furthermore, private equity investors are laser focused on generating short-term returns and the only way to accomplish that goal is to slash costs by cutting back on service and eliminating jobs. If the Midwest board is successful in selling the company to a private equity investor, the Midwest employees should be concerned about their job security and Midwest's customer service is sure to suffer,"

Skornicka said it is too early to speculate about Midwest's future employment levels in the Milwaukee market.

She also declined to say how much longer Timothy Hoeksema will continue as CEO of Midwest.

A sale to TPG is not likely to be the final chapter of the Midwest story.

TPG spokesman Owen Blicksilver acknowledged that the company typically buys an interest in a company and holds it for a few years before selling it to another equity group or again taking the company public as "better and bigger" entity.

"That's the modus operandi of most private investment firms. TPG's average holding is five to seven years," Blicksilver told SBT today.

For more, see an interview of SBT executive editor Steve Jagler by with WISN-Channel 12 news anchor Caroline Lyders.

High-performing minority businesses in Wisconsin are encouraged to apply for recognition as a 2007 Minority Business of the Year.
The Bureau of Minority Business Development of the Wisconsin Department of Commerce will present awards in three categories at the Marketplace 2007 Governor's Conference on Minority Business Development, Oct. 10-11, at the Ho-Chunk Casino Hotel and Convention Center in Wisconsin Dells.
The deadline for entries is Friday, Aug. 31.
The three award categories are: Outstanding Minority Business; the Rising Star Award and the Good Citizen Award.
Eligibility and submission rules and conference registration information can be found on the Marketplace Web site at http://marketplace.wi.gov.

Baird Venture Partners (BVP), the U.S.-based venture capital fund of Baird Private Equity, has successfully exited its investment in Madison-based NimbleGen Systems Inc. by the sale of the company to Roche for $272.5 million.
NimbleGen Systems produces high-density DNA microarrays used in pharmaceutical research. 
BVP first invested in NimbleGen in 2001 and has maintained an active role on the company's board of directors since its initial investment.
"Baird Venture Partners is proud to have worked with NimbleGen's management team and fellow investors to make this company a success." said Pete Shagory, partner of BVP. "We are very excited about the NimbleGen-Roche partnership and we think that Roche is in an ideal position to further accelerate the adoption of this technology in the marketplace.”

Nominations are being accepted for the 2007 C.G. Schmidt Ovation Award for Corporate Support.
Designed to inspire corporate giving by small and medium-sized businesses, the award honors smaller, lesser-known companies that give back to the community. The efforts can come in the form of in-kind support, board involvement or the encouragement of employee volunteerism. The award also increases awareness of nonprofit organizations in the community. 
The C.G. Schmidt Foundation will donate $2,500 to either the nominating nonprofit organization or the charity of the winning company's choice. A $1,000 contribution will also be made to an honorable mention candidate. The Ovation Award for Corporate Support will be presented at the Donors Forum of Wisconsin's Annual Statewide Conference on Philanthropy on Oct. 17.
The foundation is operated by C.G. Schmidt Inc., Wisconsin's largest commercial construction company.
To nominate a company for the Ovation Award for Corporate Support, visit http://www.cgschmidt.com/pdfs/ovation_nomination_form07.pdf.

Former Wisconsin Gov. Tommy Thompson today announced he is withdrawing from the presidential race after a poor showing in the Iowa Straw Poll. Read more in SBT's daily roundup of headlines from newspapers across the state at www.biztimes.com.

2-Story Creative, the Milwaukee advertising/design agency previously known as E & Company, unveiled its new name and identity recently during an open house gala at its new office in the Walker's Point neighborhood at 641 W. National Ave. The business was founded by Ellen Homb. To view a photographic slideshow of the company's recent open house, visit the latest edition of SBT Around Town.

Many businesses could benefit from a dose of personal discipline and accountability, according to Susan Marshall, author of today's Milwaukee Biz Blog.

The stock market bounced back into positive territory this morning, but Bruce Bittles, chief investment strategist for Milwaukee-based Robert W. Baird & Co. Inc., remains convinced that last week's problems have not been allayed.
"The largest problem for stocks is a new bank or hedge fund is troubled every day by the sudden disappearance of credit. A one-at-a time daily crisis is not helpful and leaves questions as to what area is next. The European Central Banks and the Federal Reserve added liquidity to the system (Friday), which is good and bad because it means there is potentially a significant problem or the banks would not have entered the picture. Only two days ago the Fed turned the other cheek but now it appears they are more attentive. The best indicator that the decline and the crisis have run its course is for the broad market to experience a 10-to-1 up day in terms of upside/downside volume and absent of that investors should remain cautious," Bittles said.
The BizTimes Stock Index lost 1.42 points to close at 185.56 Friday, and local stocks followed the broader market upward in early morning trading today. The largest local gainers this morning were Snap-on Inc. (up $3.12 to $53.62) and Manpower Inc. (up $3.00 to $76.39). The largest local decliners this morning were Bucyrus International Inc. (down $2.99 to $67.15) and Brady Corp. (down $2.32 to $38.42). The BizTimes Stock Index was created by Small Business Times and is monitored by North Shore Bank. The index, which measures the stock values of publicly held companies based in southeastern Wisconsin, is updated daily and can be viewed at www.biztimes.com.