XPO Putting Most of Company Up for Strategic Review, but Outcome far from Certain

In a dramatic turn, XPO Logistics, which built itself into a $15 billion transportation and 3PL services giant largely through acquisition, now says it will run four simultaneous "auctions processes" for various business unit, according to an announcement last week.

XPO said it has hired high powered investment and legal firms to execute the processes. Those include Goldman Sachs and JPMorgan Chase as financial advisers and Wachtell, Lipton, Rosen & Katz as its legal adviser in the review process.

Supply Chain Digest Says... XPO has also been battling a group of "short sellers," who would benefit of XPO's share price falls. What do you say? Click here to send us your comments Click here to see reader feedback

XPO maintained an aggressive acquisition strategy from 2011 to 2016,, hoping to be able to provide end-to-end logistics services, and cross-sell across customers for additional logistics services. With that strategy also for the most part came a soaring stock price. XPO reached a high of about $114 per share in September of 2018, up from about $31 per share at the end of 2015.

But the stock fell sharply not long after that September 2018 high point, dropping to around $50 per share by the end of last year, though had rebounded a bit to about $82.00 per share near the end of 2019. It then popped some 16% to about $91.00 per share last week on news of the potential divestiture strategy.

The company, under CEO Brad Jacobs, ran into some headwinds the last 15 months or so. In February of 2019, XPO lowered its profit outlook for the year, citing a substantial loss of business from its largest customer.

That made it the second time XPO had revised its earnings forecast down in the past three months.

XPO did not identify the customer, but said it involved its "postal injection" business, under which XPO trucks pick up bulk shipments of parcels from fulfillment centers and take them to local US Postal Service center for final delivery. It is generally assumed that customer was Amazon.

That customer was projected to reduce XPO revenues by a substantial $600 million in 2019, the company said, with revenues from the customer expected to fall from some $900 million to $300 million this year.

As a result of all this, XPO said it was changing its strategy, pulling back from plans to acquire more companies to increasing its stock buy-back program instead.

"We were trying to buy a good one or two sensible companies that would fit with us and we were getting very close, and then our stock came down quite a bit," Jacobs said at the time, when the company reported fourth-quarter results that missed analyst estimates. When "we ran the numbers ourselves it became very, very clear that the best use of our capital would be to buy our stock ourselves" instead of pursuing more acquisitions.

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XPO has also been battling a group of "short sellers," who would benefit of XPO's share price falls. In late 2018, one short seller issued a report that alleged that XPO uses aggressive accounting to hide the poor returns on XPO's growth-by-acquisition strategy.

XPO strongly dispute the report, but the stock fell anyway, and led in part to the decision to stop making acquisition and buy back stock.

The four units XPO now says are up for review are: XPO's European transportation and supply chain units; its supply chain business in the Americas and the Asia-Pacific regions; and the company's North American transportation unit, excluding its less-than-truckload business, the former Conway Freight.

"We may not sell all four, we may sell none," said Jacobs. He added that "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."

The company said it hasn't set a timetable for completing the review and that there was no assurance "of any specific outcome."

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