XPO Logistics

We have the largest outsourced e-comm fulfilment platform in all of Europe, we’re very big in omnichannel, we’re huge in reverse logistics, and we have a big presence in cold chain,” so said Brad Jacobs, the CEO of XPO Logistics on Mad Jim Cramer’s CNBC Mad Money show this week. The point he was keen to make, was that XPO is in the sweet spot of the e-commerce boom. When Black Friday printed $9bn of online spend it is a good place to be. The long-time problem for XPO, was that it was seen to be too complicated and, to glaze the complicated conglomerate structure, it had too much leverage. So what does Jacobs do? He announces to the market that XPO is going spin off the warehouse and logistics business into a separate company. Currently the business reports along two lines, transportation and logistics. Both have peers that trade on much higher multiples and post-split, which is expected to be dusted by H2 next year, the market will be able to compare apples to apples. Given the XPO businesses print higher growth rates, higher margins, and higher free cash flow conversion than peers, Jacobs is of the view that by making such metrics more visible and independent pure plays, the value accretion to shareholders will be material. After the separation , the logistics NewCo will be the second largest contract logistics company in the world, offering a range of innovative services enabled by intelligent technology serving  blue-chip customers on long-term contracts. The secular tailwinds of e-commerce are well understood, and by splitting the business in two Jacobs hopes that market will quickly re-appraise the intrinsic value of his operations that are riding the coat tails of fast-changing changing consumer behaviour.  “By separating into two global segments — two separate public trading companies, two real powerhouses — leaders in logistics and transportation, we’ve got two strong companies that are really easy to understand” Jacobs told Cramer. Time will tell, if the market was tuned in.