Back in January, XPO Logistics' (NYSE:XPO) announced plans to sell some of its business units. That took the market by surprise, as the shipping and logistics giant has always been known for its prowess in acquiring businesses, not so much selling them. On March 20, XPO Logistics called off its plans amid the COVID-19 pandemic.
The Big Strategic Plan That XPO Logistics Just Dumped
XPO filed a simple one-liner statement Form 8-K with the Securities and Exchange Commission, stating:
"On January 15, 2020, XPO Logistics, Inc. ("XPO") announced that its board of directors had authorized a review of strategic alternatives, including the possible sale or spin-off of one or more of XPO's business units. In light of current market conditions, XPO has terminated the strategic review process."
So, XPO did not just temporarily call off selling business. It has terminated the very idea of selling or spinning off some of its business units. A depressed stock market and the threat of a looming recession are largely to blame. Such an environment is not conducive to corporate activities like mergers and acquisitions and restricts options for a company, limiting the proposals and value it can get for assets.
In January, when XPO CEO Brad Jacobs announced the "planned strategic review," he highlighted how XPO stock "traded well below the sum of our parts and at a significant discount to our pure-play peers." In other words, Jacobs believed that the share price at the time didn't reflect XPO's true value, which is why splitting the company would help maximize shareholder returns. During XPO's Q4 2019 earnings conference call, Jacobs further argued that XPO stock was trading at a "conglomerate discount." As a result, the company was evaluating "alternatives" for four business units, excluding its North American less-than-truckload (LTL) unit.
XPO reports two broad segments: transportation and logistics. Transportation contributed 64% to XPO's total revenue in 2019 and includes truck brokerage and truckload services, including LTL, last mile, and intermodal. LTL is the most important business, with XPO holding the titled as the last-mile leader in North America. Under logistics, XPO provides a wide range of services from warehousing, distribution, and packaging, to inventory management.
What it means for investors
To be fair, XPO had stated in January that there's no assurance of "any specific outcome" of its plans and that the company hadn't decided which business units to sell or spin-off, if any. Yet, hopes of the company unlocking greater value from its business units and the opportunity to use sale proceeds to pare down billions in debt had lifted investor hopes of a brighter future for XPO. The stock has more than halved in the past month, as of this writing.