Midwest Air investor concerned about TPG offer

CHICAGO (Reuters) - Pequot Capital Management Inc., a large shareholder in Midwest Air Group Inc. MEH.A, said it has "significant concerns" about the airline's decision to pursue a bid by TPG Capital and Northwest Airlines Corp. NWA.N.

Midwest on Sunday accepted a $16-a-share bid by TPG and passive investor Northwest, spurning an increased offer made by hostile pursuer AirTran Holdings Inc. (AAI.N). AirTran on Sunday said it had let its offer expire.

But Pequot Capital, which says it owns an 8.8 percent stake in Midwest, likely making it the regional airline's largest shareholder, said AirTran's $15.75-a-share offer, which was raised from an earlier $15-a-share bid, may be better.

Pequot Capital says AirTran's proposal, which includes AirTran stock, has better prospects for Midwest and its shareholders.

"We believe an announced deal with Midwest would cause the value of the AirTran offer to exceed, in a very short time, the $16 indication of interest you have currently deemed to be superior," Pequot Capital said in an August 13 letter to Midwest's board that was filed with the U.S. Securities and Exchange Commission.

Pequot urged Midwest's board, which had steadfastly opposed AirTran's hostile approach for months, to reconsider its position.

Midwest was unswayed by Pequot's letter. A spokeswoman reiterated that Midwest aims to have its deal with TPG finalized by the end of Wednesday.

"We just have a different view about where value lies," Carol Skornicka said, referring to Pequot.

She did not comment on whether investors could pressure Midwest to resume talks with AirTran.

One airline expert agreed with Pequot's assessment that TPG's acquisition of Midwest would be of little benefit to the carrier, whose net profit nearly halved in the second quarter.

"I certainly agree that AirTran offers more long-term value," said airline consultant Darryl Jenkins.

But investors will unlikely be able to derail the TPG buyout, he said.

"If you have anything that will be a fly in the ointment, it will be the Department of Justice," Jenkins said.

Last month, another large institutional investor in Midwest, Octavian Global Partners, encouraged the airline to enter talks with AirTran. Octavian on Tuesday declined to comment on Midwest's acceptance of the TPG offer.

Representatives of AirTran, which withdrew its bid for Midwest, did not immediately return a phone call seeking comment on the Pequot letter.

Shares of Midwest were flat at $14 on the American Stock Exchange. AirTran shares were up 6 cents at $10.38 on the New York Stock Exchange.