XPO Logistics Spinoff

On Wednesday (Jan. 15), a news release by XPO Logistics (NASDAQ: XPO) revealed that the company was considering some strategic alternatives, including an option of spinning-off some of its business units. 

In response to the news of the spin off, Chairman and CEO of XPO Logistics, Bradley Jacobs said, " XPO is the 7th best performing stock of the last decade on the Fortune 500, based on Bloomberg market data. The share price has increased more than more than 10-folds since our investment in 2011. Still, we continue to trade at well below the sum of our parts and at a significant discount to our pure-play peers. That is why we believe the best way to continue to maximize shareholder value is to explore our options, while remaining intensely committed to the satisfaction of our customers and employees." 

Following the news of XPO's consideration to spinoff one or more of its business units, shares of the long-mile delivery company were sent high by more than 16% in extended trading on Thursday. In the last 12 months, shares of the company have gained about 37%. 

According to Reuters, the move marks a strategy reversal for the Greenwich, Connecticut-based company, which grew the business via 17 acquisitions from 2011 to 2015. 

XPO Logistics has two segments which includes logistics and transportation. The transportation segment contributes the majority to its revenue. XPO Logistics line-up services range from managing retail order fulfillment and returns to in-home, as well as “white-glove” delivery and assembly of large items such as exercise equipment and furniture. 

The transportation industry has been under pressure from U.S. trade spats with China and other countries and a slowdown in the manufacturing and coal sectors.

The company disclosed that it was not going to sell its North American less-than-truckload (LTL) unit. In 2015, XPO Logistics bought Con-way, North America’s second-largest LTL provider, for $3 billion.

However, Chief Executive Officer, Bradley Jacobs said selling or spinning off businesses was the best way to maximize shareholder value, as XPO shares trade at a significant discount to peers such as Knight-Swift Transportation Holdings Inc. (NASDAQ: KNX) and FedEx Corp. (NASDAQ: FDX). 

XPO Logistics has so many rivals in the transport and logistics segment including United Parcel Service (UPS), DHL Group (DPWG), J.B. Hunt Transport Services Inc. (JBHT), and Werner Enterprises Inc. (WERN).

XPO reportedly has been buying back shares since February 2019, when it disclosed that it lost $600 million in annual revenue from its largest customer, speculated to be Amazon.com Inc. (AMZN). 

In recent times, XPO has been faced with some challenges. One of such issues was an accusation that the company used aggressive accounting to hide its losses. The accusation was contained in a 2018 report by Hedge fund manager, Spruce Point Capital Management. However, XPO said the report was misleading and inaccurate.

Financial advisors that would be involved in reviewing the spin-off and sale process are Goldman Sachs and J.P. Morgan Securities, while Wachtell, Lipton, Rosen & Katz would be the legal adviser. 

Shares of the company currently trades at $93.70.

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