Is XPO breaking apart or what?
January 20, 2020
Last week, XPO Chairman and CEO Brad Jacobs said he might sell off parts of the company. And then he said he might not. Either way, he stressed, he would never, ever sell XPO Logistics, its growing and profitable less-than-a-truckload business. Uh, uh. No way.
In the U.S. at least that means you won’t notice much change on the highway whatever happens – or doesn’t. Some XPO intermodal containers would be painted over with a new logo. Some port drayage and straight trucks in the last-mile business may change logos too. But XPO Logistics, the highly visible LTL, will still be around – unless it isn’t.
Hey, I know what Brad said, but in the face of indecision you have to hedge your bets.
Greenwich, Conn.-based XPO was born in 2011, when Brad bought and renamed Express-1 Expedited Solutions. Brad bought 17 more companies in transportation and logistics. The idea was to build one company that could sell a corporate shipper virtually any service they needed. One part of XPO could introduce its customers to other XPO services. They call it cross-selling.
Where highway visibility is concerned, XPO grew in stealth mode until 2015, when it took over Conway, one of the largest LTLs in the U.S. It took XPO a couple of years to rebrand Conway’s equipment, its intermodal containers, and all those smaller trucks from earlier acquisitions. When the job was done, it looked like XPO had exploded from nowhere into a transportation octopus with a tentacle in just about everything. That was pretty much true.
Wall Street loved XPO.
After a rumor spread that The Home Depot was considering an XPO take over, the company’s stock rose to its all-time high of $116 per share, according to Seeking Alpha, a financial research firm.
Then in December 2018, a party-pooper named Spruce Point Capital published an article bashing XPO. Spruce Point makes money short-selling stocks. Even so, the article put a pin XPO’s bubble. XPO stock fell to less than $50 a share. It has since recovered and sells north of $75.
Last week, Brad said selling off pieces of the company will be good for shareholders. It’s all about those stockholders, he said.
Business opinions vary from “he’ll never really do it” to “after publicly saying he might, he has to.” Business-savvy types quote stock prices, margins, quarterly reports and Ouija boards to make their cases.
Here’s how it looks to this amateur.
All Brad’s talk and industry speculation about breaking up his dream conglomerate for the sake of the holy shareholders is smoke. When big companies sell off business segments, it usually means one of two things: the segment is doing poorly or they need cash.
In its 2018 attack on XPO, Spruce Point claimed – among many nasty things – that the company was “dependent on financing for survival.” Friendly researchers challenged the allegation, which led to the stock price recovery. But the smoke from the skirmish lingers.
Was Spruce Point entirely wrong? Brad certainly didn’t buy all those companies to become one of the 10 largest transportation/logistics companies on planet Earth out of his own piggy bank. Brad owes someone somewhere a lot of money.
Then there’s XPO’s sudden turn.
Not long ago, a confident XPO, its chest puffed out, declared it would be making more acquisitions, maybe even one to double the size of the company. Clearly, something changed.
Could it be the economy?
XPO does a lot of business in Europe, where it faces what economists call “headwinds.” That means business is slowing and people are buying less of what the company sells. The same is probably true in North America. Is a crystal ball warning of XPO bad times ahead? Less revenue can mean little or no profit. Could it also mean trouble paying off those loans? Is it better to sell off assets now than at discount prices later?
Brad will sell or spin off chunks of XPO. At least he’ll try. XPO stock jumped when he suggested it. He can’t go back now. That would mean another stock dip and lower price tags for those chunks of XPO on the block.
In any case, recession is like winter. It may hold off until February, but one way or another it’s coming. It could be a cold one for XPO.