Thursday, September 17, 2015

XPO’s Dive into Trucking Raises Concerns, Prompts Ratings Review

XPO Logistics Inc.’s $3 billion deal to acquire trucker Con-way Inc. just months after another multi-billion dollar deal is raising investor concerns and scrutiny over the company’s ability to combine two businesses.

Moody’s Investors Service Inc. on Thursday placed its ratings for XPO’s credit rating for a possible downgrade from a current rating that is already classified as high risk. “The sheer pace and magnitude of recent acquisitions elevates forward execution risk and balance sheet leverage relative to earlier expectations, and could be exacerbated further by increasing macroeconomic weakness,” Moody’s senior credit officer Chris Wimmer wrote in a report on the action.

The company did not immediately respond to requests for comment the Moody’s review, issued late Thursday.

Investors have hit the company’s shares since the acquisition of French trucking company Norbert Dentressangle SA closed in June. XPO shares are down about 40% since hitting their 2015 high in late May, including a 11% decline on Thursday to end at a more-than one-year low of $30.24.

The Con-way acquisition announced Wednesday deal will make XPO one of the largest freight transportation providers in the U.S., advancing a plan to become an all-in-one logistics and transportation firm. Unusually in the fragmented trucking market, XPO will offer a wide array of services, including short-haul trucking at ports and freight brokering. The company is betting that diverse mix will allow it to lower costs and win bigger clients.

But success will rest largely on the ability of XPO, which generates most of its revenue in the asset-light business of matching shippers with carriers, to operate Con-way’s trucking fleet. That could be a challenge as the company is still digesting its purchase of Norbert Dentressangle in June and numerous other acquisitions in the last five years, analysts say.

Concerns about the pace of integration were heightened last week, when Hervé Montjotin, Norbert’s former chief executive, who had headed XPO’s European arm since the acquisition, resigned.

Offering so many shipping services under one roof “is a very interesting capability [that] immediately catapults XPO into a different stratosphere”, said Mike Regan, chief of relationship development at TranzAct Technologies Inc., which helps shippers negotiate freight rates. “But to what extent am I willing to bet my supply chain on their being able to seamlessly integrate their capabilities? That’s a big question.”

XPO Chief Executive Bradley Jacobs said in an interview earlier Thursday that his company would win back investors who had lost faith in the company after the latest acquisitions.

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