XPO Logistics is exploring options. The giant diversified logistics service provider issued a statement on January 15 that its “board of directors has authorized a review of strategic alternatives, including the possible sale or spin-off of one or more of XPO’s business units”. This appears to be a clear indication that the company will sell a major part of the business.
The motivation is clear. Bradley Jacobs, the company’s founder and CEO said that despite XPO being “the 7th best-performing stock of the last decade on the Fortune 500” and the share price having “increased more than ten-fold since our investment in 2011… we continue to trade at well below the sum of our parts and at a significant discount to our pure-play peers. That’s why we believe the best way to continue to maximize shareholder value is to explore our options”. Speaking on US television Bradly Jacobs commented that “as a diversified company the market is only giving us a multiple of eight or nine times (earnings)… if you look at what you would get if you sold off four of our business units, each one as a smaller pure-play would get a higher multiple”.
In an interview with the Wall Street Journal in the US later in the week, Mr Jacobs commented that there was no preconceived outcome for the review, rather all of the four constituent businesses would be examined for disposal; “We may not sell all four, we may sell none”. There is also no timetable for any sales.
The only business that XPO will not sell is its North American less-than-truckload operation. That leaves the trucking and contract logistics businesses in Europe, North American intermodal, forwarding and last-mile divisions. There have been some hints that a large company may have already expressed interest in buying some of these operations.
Bradley Jacobs is also quoted as saying that XPO may end-up being a “fast-growing, pure-play LTL company with a lot of liquidity.”
The move is not completely unexpected. Mr Jacobs has a record of buying and selling businesses at speed and of being focussed on value. XPO Logistics was created in just a few years almost from nothing through the acquisition of companies such as Con-Way and Norbert Dentressangle and has done surprisingly well.
The company has come under some pressure recently as a result of secondary issues such as its relationship with Amazon, however this was hardly an existential threat. Rather, Bradley Jacobs is likely to do what he has always done and look for the best value for his assets.
Source: Transport Intelligence, January 23, 2020
Author: Thomas Cullen