how an activist is complicating bradley jacobs\' xpo acquisition strategy

Logistics Limited(XPO -Get Report)
CEO Bradley Jacobs is known for operating the company\'s cumulative M & A approach. After a two-
One year break in trading
In Greenwich, Conn. -
Under Jacobs\'s supervision, US-based logistics companies are once again interested in acquisitions.
Logistics companies may pay \"billions of dollars\" for the acquisition and may acquire companies with Ebitda exceeding $0. 5 billion;
Jacobs recently told reporters.
It is speculated that XPO Logistics may be interested in acquiring Ceva Logistics
Apollo Capital Management, a private equity giant, has a global freight management company.
However, such acquisitions will face the complications of the previous acquisition, which the company has not yet fully closed.
In 2015, XPO bought Norbert dentangle SA, a French trucking and logistics company, for $3. 5 billion deal.
But they have a problem: billionaire activist Paul Singh and his Elliott Management.
On April 2015, shortly after XPO announced the acquisition of toNorbert, the rebel fund accumulated shares in Norbert and finally acquired 9% of the shares as so-
Called the \"bumpitrage\" strategy to drive higher prices.
The activist argues that considering Norbert\'s large truck transport fleet in Europe and the transportation in the United States, the XPO offer does not represent fair valueS. operations.
However, Elliott\'s shares are so large that under French law, XPO cannot eliminate all minority shareholders of the company, nor can it completely end its acquisition of Norbert, which is later renamed XPO Europe.
As a result of French regulations, these shareholders, led by Elliott, have a range of rights, including legal restrictions on the use of cash on Norbert\'s balance sheet, and the requirement that European units continue to make public transactions, and set up an independent committee with annual meetings.
So if XPO wants to get more cash from its European sector, say help billions of dollars
Acquisition of Ceva or other company in US dollars, it needs to pay dividends to itself, including dividends to 13% minority shareholders.
By not taking this approach, XPO, in the absence of an agreement with the militant fund, has been involved in some distortions to withdraw capital from the French sector.
For example, XPO arranged forXPO Europe to get about $0. 9 billion in loans from the parent company for a price of £ 5.
The interest rate for repaying part of public debt is 625%.
With loans, XPO can go up millions each year, but they still leave a lot of cash.
The department generates a lot of cash flow that can be used to raise debt and fund major acquisitions, but only if XPO Europe is fully integrated into the parent business.
In addition, the balance sheet of XPO Europe is about 0. 115 billion euros.
If the logistics company wants to buy Ceva, the full integration of XPO Europe will help, and sales of Ceva may be between $1.
According to $5 billion from Ebitda in 2016, $3 billion to $0. 254 billion.
Alternatively, Kevin Stirling, an analyst at Seaport Global, suggested that if XPO Logistics is going to make a massive acquisition, it may need to open up the capital market through stock issuance.
Sterling said raising XPO\'s leverage to fund large acquisitions could raise questions among shareholders.
\"They still have a fair amount of leverage [on the books].
\"Shareholders are already a big panic.
About 47% of the shares voted on by XPO logistes\' May annual meeting opposed C-
This means that a large number of investors may not be satisfied with the company\'s strategy.
In addition, there will be integration problems.
The acquisition of Ceva could solve XPO\'s last mile logistics problem in Europe.
\"If they can combine the two, they can promote seamless global trade,\" Sterling said . \"
\"If you could put the two together, you would want to put everything on a system with cost synergies instead of having two different back-office platforms.
\"However, without violating the French rules designed to protect the interests of XPO European shareholders, XPO will not be able to fully integrate its business with XPO Europe.
It may have similar integration issues with other acquisitions.
In fact, there is already a problem of integration.
XPO can\'t integrate a U completelyS.
Jacobson, which was acquired by Norbert in 2014, although some of the company\'s operations overlap with xpo u. S.
Fully integrated Jacobson will allow the parent company to transfer assets on its balance sheet, something they can\'t do now.
A person familiar with the matter said there were potential conflicts.
He suggested that when potential customers call XPO Europe seeking to do business in the US,S.
This customer needs to be routed to Jacobson instead of xpo u. S.
Xpo u recommendationS.
This could be against French law, he added, as it could be seen as gaining value at the expense of XPO\'s European shareholders.
Elliott on Thursday raised the possibility of conflict at the 2017 annual meeting of XPO Europe, where the militant group tried to elect a director of a dissident, but failed.
Due to the fact that XPO Logistics owns about 86% of the directors of XPO Europe, Elliott did not have the opportunity to be elected.
Nevertheless, the fund urged shareholders to vote against Troy Cooper, the European director of XPO.
Cooper, chief operating officer of XPO Logistics, may spend most of his time focusing on the US market. S.
The XPO business, they think, is not the Norbert business.
Editor\'s note: The article was originally published in July 5, 2017.