JetBlue Seen As The 'Only' Logical Acquirer Of Virgin America, May Be Forced Into Deal

Reports that Virgin America Inc (NASDAQ: VA) is considering buyout offers sent the stock soaring in Wednesday’s trading session. Although the identities of potential buyers have not been revealed, Buckingham analyst Daniel McKenzie sees JetBlue Airways Corporation (NASDAQ: JBLU) as the only logical buyer.

According to McKenzie, a JetBlue/Virgin America merger makes a lot of sense, but JetBlue has never been active in M&A.

“However, under the scenario where Mr Branson’s minority stake ends up in the hands of a Middle Eastern airline (say, Etihad) and where Virgin becomes a well-capitalized competitor (e.g. Middle Eastern airlines have proven a willingness to lose vast amounts of money for small market share gains), JBLU could be forced to move on Virgin,” he explains.

Related Link: Virgin America Stock Takes Off After Buyout Report

McKenzie sees limited potential long-term upside for Virgin America shareholders if the company remains independent.

If a buyout does happen, he expects a stock for stock transaction at a 15-35 percent premium. A combined JetBlue/Virgin America would only hold about 5.0 percent market share, so the deal likely wouldn’t face any major antitrust push-back from regulators.

Despite incremental modest upside for Virgin America’s stock if a deal is completed, Buckingham maintains its previous Buy rating and $40 price target.

Disclosure: the author holds no position in the stocks mentioned.