Virgin America (VA, Financial) has soared so far this year following acquisition rumors. It was recently reported that Virgin America is looking for a potential suitor and Bloomberg claimed that both JetBlue (JBLU, Financial) and Alaska Airlines (ALK, Financial) are interested in buying the carrier.
In one of my previous articles, I wrote that JetBlue as a potential buyer makes sense for both the companies. However, the arrival of Alaska Airlines may change that as both the companies may soon enter into a bidding war for Virgin America. Investors can capitalize on the anticipated bidding war by buying Virgin America for the short-term.
JetBlue still makes sense
I still believe there’s a strong chance that JetBlue will buy Virgin America. Both the businesses complement each other nicely, and integrating Virgin America will be very easy for JetBlue as both carriers have a majority of Airbus A320s on their fleet.
JetBlue’s balance sheet is also strong, and although the company may have to take on more debt to fund the acquisition, it will be worth it in the long run.
Alaska Airlines
I believe buying Virgin America will make more sense for JetBlue because of the similar fleet. However, Alaska Airlines is also rumored to be interested in the deal. Just like Alaska, Virgin America has a strong presence on the West Coast. Hence, Alaska buying Virgin America will help the former increase its dominance on the West Coast.
Moreover, the reduced competition can also lead to improved ticket prices, an area which has been a massive concern for Virgin America investors. Thus, Alaska Airlines has a good enough reason to bid for Virgin America.
In addition, Alaska Airlines has a better balance sheet than JetBlue and can potentially out bid it if it enters into a bidding war. Unlike many other airlines, Alaska has a positive net cash position and is a good suitor for Virgin.
Bidding war
While I still think JetBlue is the likely acquirer of Virgin America, I wouldn’t be surprised to see a bidding war. Both JetBlue and Alaska can improve their business by buying Virgin America. Due to the possibility of a bidding war, I think investors can buy Virgin America for the short-term.
Moreover, the potential of an acquisition will continue driving Virgin America’s share price higher for the short-term. Hence, investors can capitalize on the recent events by buying the stock.
Disclosure: The author doesn’t have any position in the stocks mentioned in the article.
