XPO Spinoff Approved; Shares To Start Trading Aug. 2

XPO Logistics Inc. XPO said Tuesday that its board has approved the spinoff of the company's contract logistics operations, and that the company will begin trading on the New York Stock Exchange Aug. 2 under the symbol GXO.

The announcement marks the culmination of an eight-month process that began when Greenwich, Connecticut-based XPO announced in December that it would spin off its logistics business while keeping its LTL and brokerage businesses, among others, under the XPO banner. Brad Jacobs, XPO's founder, chairman and CEO, will continue running XPO. Malcolm Wilson, who has been running XPO's European operations, will head GXO.

The move, the most significant in XPO's 10-year history, was part of Jacobs' plan to boost shareholder value by simplifying operations and placing more focus on LTL and truck brokerage. Jacobs has long said that XPO's shares were being penalized with a "conglomerate's discount" because its many moving parts made it too challenging for investors and analysts to attach appropriate valuations to the company.

The unit is forecast to generate about $1.5 billion in 2022 earnings before interest, taxes, depreciation, amortization and rent (EBITDAR), XPO said. XPO leases the vast majority of its facilities, which under GXO will total about 850 locations. Customers cover the rental costs as part of their contractual relationships with the company, according to an XPO spokesperson.

XPO did not provide "day one" revenue estimates for GXO. In an SEC filing last month, it forecast 2022 revenue growth for the unit would be 8% to 12% higher than 2021 pro forma figures. GXO's existing customers are expected to generate 3% to 4% more revenue in 2022 than they will in 2021, according to an XPO spokesperson. The company will announce its second-quarter results, its last as a consolidated entity, on July 28.

The hope among GXO shareholders is that the fledgling company can fully capitalize on the favorable macro trends surrounding international logistics. E-commerce, expected to be a major focus of GXO, accounts for just 20% of the global retail market, according to company data. E-commerce, omnichannel retail and technology account for $2 billion of GXO sale pipeline, the company said.

Only about 30% of global logistics is outsourced, a trend that GXO said bodes well for its business. In addition, only 5% of warehouses worldwide operated in an automated manner, a level of under-penetration that GXO, which plans to have 3,100 robots and automation systems in its warehouses by year's end, expects to leverage.

Amit Mehrotra, transport analyst for Deutsche Bank, said in a Tuesday note that GXO should trade at around $67 a share right out of the gate. Mehrotra said the new company's significant growth prospects and net debt reduction will be offset by "muted" cash flow prospects as it confronts substantial working capital needs to support rapid growth. GXO will initially trade at a conservative multiple of 12 times EBITDA, which could be re-rated higher if management executes on its growth strategy, Mehrotra said.

Mehrotra said that the incumbent XPO could be worth $111 a share based on a similar valuation outlook. This would imply a combined value of about $180 a share, he said.

As of 2:30 p.m. ET, XPO shares were trading at $142.13, down less than 1% on the trading session.