Bullish options flow was detected in XPO stock on January 17, 2020.
Shares of XPO Logistics (XPO) are attracting buyers after the company confirmed plans to explore strategic alternatives, including a sale of the company or spinoff of one or more business units.
Cowen analyst Jason Seidl raised his price target for XPO Logistics to $125 from $100 on further details around the company’s strategic pivot after speaking with management. The analyst notes that the company is conducting a sell-side process for all four of its business units, while intending to maintain ownership of its North American LTL division. When all is said and done, assuming the company sells all four businesses, it would be a pure-play LTL business with little to no debt, he adds. Seidl believes that the sale process for the four units will be conducted concurrently, and if the books are not out yet, they will be in the next week. There are many strategic and financial buyers for each of the four units, he contends.
Citi analyst Christian Wetherbee sees value in the potential breakup of XPO Logistics, but he notes the process announced last night in a press release has just started. There is “sizeable” potential value from divestitures, particularly assuming control premiums, but the announcement coming before any discussions with potential buyers have been had is surprising, Wetherbee tells investors in a research note. The early stage nature of the announcement likely means a “healthy discount” to the breakup value will persist until incremental information on the process is made available, adds the analyst. However, Wetherbee expects shares to be up materially on the news, saying even a 25%-50% probability of success could provide a 20%-40% boost to shares. He keeps a Buy rating on XPO Logistics with a $100 price target.
On January 15, 2020, in an interview on CNBC’s Mad Money, XPO Logistics CEO Brad Jacobs said, “We are still getting a low multiple despite our performance. We’re not marketing the whole company, just four business units. What we’re doing is the best way to create shareholder value.” When asked about the business environment, Jacobs said, “Business is good. I’m sensing a bottom in the industrial economy. Our British customers want to invest when Brexit is behind them.”
What started all this rumor and spin-off drama was the company announcing, on January 15, 2020, 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.
Bradley Jacobs, chairman and chief executive officer of XPO Logistics, 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 ten-fold 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’s 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.”
In making the announcement, XPO noted that there can be no assurance of any specific outcome. The company has not set a timetable for completion of the review process and has not determined which, if any, business units would be sold or spun off. However, the company does not intend to sell or spin off its North American less-than-truckload unit.
XPO has retained Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC as its financial advisors and Wachtell, Lipton, Rosen & Katz as its legal advisor to assist with the review process.