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AirTran backers and some Midwest investors have cried foul at a fee arrangement that seemingly pays Goldman more should it determine the Oak Creek, Wis.-based airline’s best option is to remain independent, among other corporate governance complaints. CtW Investment Group in a letter to Midwest’s board dated Wednesday cites a fee structure that it says appears to pay Goldman $7.4 million if there is no merger, but just $4.9 million if one does take place.
Those figures were calculated based on a Schedule 14-A Midwest filed with the Securities and Exchange Commission on March 7. In the filing, Midwest states that Goldman is to be paid $1 million on the date the contract is signed, plus $1 million on April 1 and an additional $1 million on each of the next five successive three-month anniversaries. A final $400,000 would be due on Oct. 1, 2008, meaning Goldman stands to make $7.4 million in advisory fees should AirTran pursue into next year without an agreement being signed. Things get murky if a deal is signed. According to the filing, the contract calls for a fee equal to 1.25% of the “aggregate consideration paid,” minus whatever has already been paid to Goldman, if Midwest comes to the altar. With AirTran’s offer valued at $389 million, CtW and others have assumed that means Goldman would be paid about $4.9 million if a deal is done. Unstated in the filing — and causing the confusion — is the definition of aggregate consideration. A Midwest official said Thursday that the aggregate consideration includes not just the purchase price, but also the assumed debt and a figure equal to 7 times the value of the company’s aircraft leases. Figuring Midwest has about $64 million in leases and $20 million in debt, the aggregate total would be about $857 million — meaning Goldman would be paid more than $10.5 million in the event of a deal, an amount higher than what it will get if no transaction is done. So on this matter at least, it appears there is no corporate governance concern. However, Midwest could save investors a lot of confusion by beefing up the disclosures in their securities filings. —Lou Whiteman See May 24 story in The Deal Categories Deal Video
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An interesting side note in AirTran Holdings Inc.’s hostile pursuit of Midwest Air Group Inc. is a lingering dispute over how much Midwest is paying Goldman, Sachs & Co. for advisory work done in its defense. 
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