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 explained.
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.
Image Credit: Public Domain
Latest Ratings for JBLU
Date | Firm | Action | From | To |
---|---|---|---|---|
Jan 2021 | Vertical Group | Downgrades | Buy | Hold |
Jan 2021 | Susquehanna | Maintains | Neutral | |
Dec 2020 | JP Morgan | Downgrades | Overweight | Underweight |
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