Update: XPO announced Tuesday its 5-million-share offering priced at $138 per share before underwriting discounts and commissions. The transaction provides $690 million in total proceeds, which will be split evenly between the company and Jacobs Private Equity. The offering is expected to close Thursday. A 30-day 15% overallotment option remains open.
XPO Logistics (NYSE: XPO) announced Monday an equity offering of 5 million shares of its common stock. Half of the shares will be offered by the company with the other half coming from selling shareholder, Jacobs Private Equity, an investment company controlled by Brad Jacobs, XPO’s chairman and CEO.
XPO will use the proceeds from the transaction to pay down debt and for “general corporate purposes.” The company will not receive any proceeds from the shares sold by Jacobs.
There is also an overallotment option to offer an additional 750,000 shares, which would be equally provided by the two parties as well.
The transaction put approximately $700 million of XPO equity in the market on Monday, which placed downward pressure on the stock. Shares of XPO sank as much as 8% on the news but rallied to close the day down 6.3% at $140.61 per share. The S&P 500 was up 0.23% in Monday’s session.
Shares of XPO have nearly doubled over the past year, pushing its market capitalization to nearly $17 billion as of the close of trading Friday.
The bulk of the $350 million in expected proceeds, potentially more than $400 million depending on the pricing of the shares and whether or not the overallotment is tapped, is expected to be used to reduce the company’s $4.6 billion in net debt (as of the close of the first quarter), a source familiar with the transaction told FreightWaves.
The deal is likely to be slightly dilutive to earnings per share as a reduction in interest expense is offset by the increased share count, the source said.
Prepping for a third-quarter spinoff
The announcement follows recent balance sheet moves from the Greenwich, Connecticut-based transportation and logistics provider ahead of a planned spinoff of its logistics unit, GXO Logistics, during the third quarter.
In mid-June, GXO priced $800 million of notes to fund a cash distribution to XPO and to provide working capital to the new entity. Earlier in the year, XPO refinanced a $2 billion term loan and redeemed $1.2 billion of 6.5% senior notes.
Following the spinoff, the two companies will be separately traded on the New York Stock Exchange. Jacobs will remain as chairman of both entities as well as CEO of XPO, a transportation company primarily offering less-than-truckload and truck brokerage services.
Analysts have commented in the past that one of the overhangs on XPO’s valuation has been its high debt leverage. The company ended the first quarter with net leverage, defined as net debt-to-trailing 12 months’ adjusted earnings before interest, taxes, depreciation and amortization of 3.1x.
XPO is expected to achieve an investment-grade rating, likely sub-2x net leverage, “over time” post the split. GXO is expected to achieve that mark on day one.
If the equity offering is completed, Jacobs and his affiliates will still be the largest shareholders in XPO, owning 13.6% of its outstanding shares, or 13.2% assuming the overallotment option is fully exercised.
Goldman Sachs (NYSE: GS), Citigroup (NYSE: C) and Barclays (NYSE: BCS) are the lead book-running managers on the deal. Credit Agricole (US OTC: CRARY) and Deutsche Bank (NYSE: DB) are listed as book-running managers.
