XPO courting offers for European supply chain business: report

XPO Logistics, Inc. (NYSE:XPO) has put out feelers for its European supply chain business, a transaction that could fetch between $4 billion and $4.5 billion if consummated, according to a published report.

Bloomberg reported on its website over the weekend that Greenwich, Connecticut-based XPO has reached out to potential buyers in recent weeks. Nothing may come of the process, the report said. XPO executives were not immediately available to comment on Sunday.

Should a deal move forward, it would re-start XPO Founder Brad Jacobs’ (pictured) ambitious plan announced in January to put the company’s four business units, two each in North America and Europe, up for sale. 

XPO would keep its North American less-than-truckload (LTL) business and become a pure-play LTL carrier, according to the plan. At the time, Jacobs said the objective was to dramatically boost the company’s value, which was compressed by what he termed the “conglomerate discount.” 

The initiative was scrapped when the novel coronavirus hit the U.S. in March.

The Lyon, France-based European contract logistics business, which accounts for most of XPO’s European exposure, came out of the company’s $3.5 billion purchase of French transport and logistics firm Norbert Dentrassangle, S.A. in 2015. The unit generated nearly $3.7 billion in revenue in 2019. More relevant from a valuation perspective, it generated about $290 million in earnings before interest, taxes, depreciation and amortization (EBITDA), according to a Wall Street source. EBITDA is Jacobs’ preferred valuation metric. 

A $4 billion to $4.5 billion price tag on the European unit would deliver a multiple of around 15 times EBITDA, making a sale highly accretive, the source said. If it reaches that level, XPO would sell the unit in a heartbeat, the source said. 

What’s more, a sale at those valuations would force investors to re-value XPO’s other units, creating a rising-tide-lifts-all-boats scenario, the source said.

Jacobs said at an industry conference late last month that selling the units would not be his first choice. However, he has never killed the idea, and he has long emphasized that his primary mission at XPO is to maximize shareholder value over building an empire.

Jacobs also reiterated that XPO shares are valued well below their intrinsic worth because Wall Street doesn’t fully understand the company’s many moving parts and, as a result, errs on the side of the low end. XPO shares are valued at about 10 times EBITDA, much lower than best-in-class LTL carriers and some third-party logistics (3PL) providers.

In January, analysts estimated that XPO shares would rise by $30 to $60 per share if all four business units were sold. XPO’s $13 billion non-LTL business traded at 4.25 times EBITDA, according to estimates at the time from Deutsche Bank. That was well below the eight times EBITDA figure considered acceptable for a business with solid growth prospects and low capital investment, the bank said then.

XPO shares closed Friday at $86.26 a share.