Report says key bidder drops out of XPO Europe sale

Following an early October Bloomberg report, which indicated Greenwich, Conn.-based global freight transportation and logistics services provider XPO Logistics was vetting the possibility of selling its European supply chain business, a Bloomberg report published this week stated that is no longer the case.

The reason for this, according to the report, is that Blackstone Group Inc., whom was viewed as a “key bidder” for the XPO unit, has dropped out of consideration, due to what the report called a “disagreement over valuation,” with the report attributing this to “people with knowledge of the matter.” The report said that XPO’s asking price was up to $4.5 billion.

While Blackstone may be out of the running, Bloomberg noted that XPO is still drawing interest from other potential buyers and plans to ask for another round of bids early next month. And it added that XPO is also considering options, including a separate listing of the business.

XPO officials declined to comment on this matter upon request.

On XPO’s third quarter earnings call earlier this month, XPO Chairman and CEO Brad Jacobs said he would not comment on strategic alternatives.

“In terms of, generally, capital allocation, it's the same choices that we've always had between M&A and CapEx and paying down debt and buying back shares and so forth,” he said. “And our strategy is always going to be the same. Whatever is the best thing for our shareholders in terms of creating the most amount of shareholder value, that's what we'll do.”

As previously reported in LM, XPO’s European operations kicked into high gear in June 2015, when it acquired Lyon, France-based 3PL Norbert Dentressangle SA for $3.53 billion. Prior to the acquisition being made official, Jacobs told LM that that this acquisition would provide XPO with the scale to be a global supply chain provider, noting that Norbert Dentressangle was intrigued by becoming part of XPO and a global supply chain powerhouse, which led to the deal coming to fruition.

And in the following years XPO continued to bolster its European operations.

In March, the company announced it had entered into a definitive agreement to acquire the majority of Kuehne + Nagel’s United Kingdom-based contract logistics operations. And that same month it said that inked a long-term partnership with Mercedes-Benz Parts Logistics and manage United Kingdom (UK) UK parts distribution through an integrated, digitally-managed transportation network. 

During its nearly ten-year existence, XPO has made myriad significant investments, with perhaps the two most high-profile ones coming in 2015, when it brought both Lyon, France-based 3PL Norbert Dentressangle SA into the fold for $3.53 billion to boost its European presence, and Con-way in October 2015 for $3 billion, which made it one of the top LTL providers in North America and also expand its global contract logistics, managed transportation and freight brokerage businesses. Since Jacobs took the helm and established XPO, the company made 17 acquisitions between March 2012 and October 2015.

In mid-January, XPO said that it was vetting strategic alternatives through the spin off or sale of some business units, but it then reversed course a little more than two months later, in an 8-K statement filed with the United States Security and Exchange Commission (SEC), “in light of current market conditions,” at that time. XPO said in mid-January that its board of directors authorized a review of strategic alternatives, which included the possible sale, or spin-off, of one or more of its business units, with the exception of its North American less-than-truckload unit, which is second in profit behind Old Dominion Freight Line (ODFL) and third in revenue behind FedEx and ODFL. And it added, at the time, that there was “no assurance of any specific outcome” and no specific timetable for the completion of the review process or which, if any, of its business units would be sold or spun off.

XPO’s Jacobs told LM around that time that XPO Logistics was exploring possible sales or spin-offs for four of its business units: European Supply Chain; North American Transportation (minus LTL), Supply Chain for the Americas and Asia Pacific.

“We do not intend to sell our North American LTL business, given the growth trajectory and because we believe that LTL as a standalone company would be well understood if properly valued,” he said. “We have a fantastic track record of creating tremendous shareholder value, and we think this process we are undertaking could be a way to create more value this year.”

Evan Armstrong, president of Milwaukee-based supply chain consultancy Armstrong & Associates, previously said that it seems like XPO Logistics has adopted a strategy of domestic retrenchment for short-term shareholder gain.  

“It is basically betting against a return to normal global trade (after Trump’s trade wars and import tariff) and offering global supply chain solutions to large multinational corporations,” he said. “The smaller the network scale in third-party logistics, the more competition, and it looks like this is where XPO is headed. For some reason XPO continues to be enamored by less-than-truckload (LTL) trucking. While its LTL operations are doing good financially, the real gem is XPO’s last-mile operations which are better suited to tap e-commerce growth due to its highly integrated hub and spoke network and last-mile contract carrier relationships.

Addressing LTL, he explained that traditional LTL transportation is better suited for business-to-business shipments with dock door deliveries while suffering from low customer switching costs and limited cross-selling potential.

“We estimate 3PL e-commerce revenues will reach $53.3 Billion in 2020 driven by strong business-to-consumer retail sales which have seen a sharp increase during the pandemic driving a compound annual growth rate (CAGR) of 28% from 2017 to 2020E, he said. “In addition, the U.S. Last-Mile Delivery Market should grow to $50.4 Billion this year, having at 17.3% CAGR from 2017 to 2020E. Our advice would be to spin off its domestic LTL operations to generate cash and get back to being a global supply chain management 3PL.”

And Benjamin Gordon, CEO of Palm Beach, Fla.-based Cambridge Capital, an investor in niche supply chain leaders, told LM earlier this year that XPO has built a market leader in global logistics.

“That said, CEO Brad Jacobs has articulated his intent to focus on North American logistics, technology, and LTL,” he said. “Therefore, it makes sense for XPO to consider a European divestiture. The European business could be more valuable in the hands of the right buyer. I would expect strategic acquirers in European logistics to be very competitive.”