Shares of XPO Logistics (XPO -0.08%) traded up more than 13% on Thursday after the company said it was exploring selling one or more of its business units. The transportation and shipping company believes it is suffering from the so-called conglomerate discount, meaning that investors are not properly valuing the different parts of its portfolio.
XPO shares appreciated nearly 3,000% during a ten-year period ending in mid-2018, but the stock gave up about half of those gains in the last 18 months due to criticism from a short-seller and the unexpected loss of a major customer.
The company has made some progress in demonstrating that the worst is behind it, and the stock has reacted somewhat, but CEO Brad Jacobs in a statement announcing the planned strategic review said that he does not believe the XPO's current share price reflects the value of its assets.
"We continue to trade at well below the sum of our parts and at a significant discount to our pure-play peers," Jacobs said. "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."
XPO intends to explore a wide range of potential options, including the sale of some European and U.S.-based assets. The company said it does not intend to sell or spin off its North American less-than-truckload shipping unit, which is a major generator of EBITDA.
As always with these announcements, it's worth noting that there can be no assurances that XPO will find acceptable offers for what it is selling. But investors are clearly excited about the possibilities. Jacobs has been a deal maker his entire career and will likely find considerable interest in XPO businesses, including its North American freight brokerage and contract logistics operations and its European operations. Proceeds can be used to either continue share repurchases or pay down some of its $7.32 billion debt load.
If all goes to plan, the new, streamlined XPO will specialize in managing supply chains using a suite of proprietary technology platforms that XPO has developed in-house. It's going to take a while to get there, but the market is clearly excited about the direction XPO is heading in.