* Market "puzzled" by WestJet reasons for raising cash
* Money could be for acquisition, cushion for tough times
* Stock falls 4.5 percent to C$11.17
By Susan Taylor
OTTAWA, Sept 10 (Reuters) - WestJet Airlines (WJA.TO) may be readying the ground for its first acquisition with a surprise C$172.5 million ($160 million) share offering, analysts said on Thursday.
Analysts differed on the logic behind Wednesday's announcement, but some said the airline, which had C$740 million in cash at the close of the second quarter, hardly seemed to need the extra cash.
"Given that the company's official explanation for raising money at this time does not make a lot of sense to us, we wonder if there is potentially another more strategic rationale," Versant Partners analyst Cameron Doerksen said in a note.
"Until the company provides a more detailed use of proceeds, we suspect that the market will remain puzzled by the timing of this deal."
The timing of the stock issue, which could dilute existing shareholdings by 12 percent, is more puzzling because WestJet's share price is depressed, Doerksen said. The stock has lost about 14 percent of its value so far this year.
Trading at C$11.70 before the offering was announced, WestJet stock shed 4.5 percent on Thursday to C$11.17 on the Toronto Stock Exchange.
Underwriters will sell up to 15.4 million WestJet shares for C$11.20 each. Announcing the deal on Wednesday, WestJet said simply that proceeds will go to aircraft financing, capital expenditures and general corporate purposes.
"In our view, this is a broad phrase to mean that it does not want to disclose what its actual intentions are for the proceeds," Research Capital analyst Jacques Kavafian said.
WestJet may be targeting privately held Porter Airlines, which operates a fleet of propeller planes from the small Toronto Island Airport, Kavafian said. Porter's main success has been in Eastern Canada, where WestJet is weaker, he noted.
And Paradigm Capital analyst Doug Cooper said Canadian tour operators could be a nice fit with WestJet Vacations.
"Something like this could offer large growth potential for WestJet, as it could allow it to capture a significant share of a relatively new market, without causing cannibalization of its existing business," he said in a note.
A spokesman for Canada's No. 2 airline said regulations restrict WestJet from commenting until the offering closes.
The no-frills carrier, one of the few profitable airlines in North America, said last month it would slow its planned fleet expansion due to the weak economy.
The money may be a form of protection against an industry battered by low demand, the H1N1 flu and recession, said Genuity Capital Markets airline analyst David Tyerman.
Kavafian also said WestJet, based in Calgary, Alberta, might be replenishing its war chest for a tough competitive environment in the next six months. It is preparing to roll out a new reservation system and frequent flyer program.
And the airline might need cash because it has ordered a wide-body aircraft to launch international flights.
"This share issue is puzzling. It may or may not be an indication of further things to come," wrote Kavafian. "Either way, we recommend prudence and await further development." ($1=$1.08 Canadian) (Reporting by Susan Taylor; editing by Janet Guttsman)