July 16 (Bloomberg) -- Virgin Blue Holdings Ltd., Australia's second-biggest airline, surged the most in three years in Sydney trading on speculation its spinoff from Toll Holdings Ltd. may lead to a takeover bid.

The carrier, part-owned by Richard Branson's Virgin Group Ltd., jumped 14 percent, the most since January 2005, to 66.5 cents at the close. The stock has risen 32 percent in the past three days.

Toll, Australia's largest freight-hauler, said on July 14 it would distribute a 62 percent stake in Virgin Blue to shareholders via a special dividend. That has spurred speculation about a bid and also caused index-tracking funds to buy the carrier's shares in anticipation of it joining the S&P/ASX 300.

``It comes back to an element of takeover prospects that weren't there when Toll held the stake,'' said Brent Mitchell, an analyst at Shaw Stockbroking Ltd. in Melbourne. ``There could also be someone adjusting their index funds to it.''

Virgin Blue expects to join the S&P/ASX 300, it said on July 14.

Mitchell said it was unlikely that Virgin, which owns about a quarter of the carrier, would buy more shares.

``I'm ruling out the Branson group taking a larger stake for the moment,'' he said. ``They're under pressure globally with rising fuel prices and the general health of the aviation industry.''

Virgin own stakes in carriers in countries including Malaysia, the U.K., Nigeria and the U.S.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

Last Updated: July 16, 2008 03:04 EDT