Experts downplay speculation that Home Depot will bid for XPO Logistics

04 / 01 / 2018

Delivery expert ParcelHero has warned that a rumoured sale of XPO Logistics to US retailer Home Depot is "highly unlikely" and would harm XPO’s many UK retail and manufacturing clients.

According to ParcelHero’s head of consumer research, David Jinks, a takeover bid by US-based DIY retailer Home Depot for XPO, in order to compete with e-tailer Amazon, would not be in the best interests of XPO’s British clientbase. 

Neither XPO nor Home Depot have commented publicly on the speculation which saw analyst Citigroup raise its XPO Logistics share price target from $75 to $110 in response to market talk. XPO - with a $14.6bn turnover in 2016 - saw its shares trading at nearly $78 on December 4 and opened today at $92.33.

Stifel Financial Corp this week updated XPO’s twelve month price target to $120, but added that the new forecast is not based on the Home Depot rumour and also said that a takeover is unlikely. 

Home Depot's stock price has remained stable throughout the last four weeks, up from nearly $184 to $189 per share today.

Said Jinks: "Some retail analysts believe Home Depot’s mooted XPO take-over would actually help it become an Amazon in its own right; controlling not just the sales but the means of delivery of a huge range of items."

However, Jinks believes that the move would be a mistake for both XPO and Home Depot – and particularly for XPO’s many UK users.

Added Jinks: "Home Depot is presumably mostly after the final mile/home delivery side of XPO, which is probably only around 6% of what the logistics giant does. Equally, XPO probably only gains around 5% of its overall income from Home Depot – so there is precious little synergy.

"Most importantly, XPO is a logistic provider for many of the UK’s major brands. It runs UK supply chain operations for companies from Ford to B&Q to Iceland. Three years ago US-based XPO took over the huge European logistics company Norbert Dentressangle – which in its turn had previously absorbed two British transport giants, Christian Salvesen and TDG.

"The company is so integrated into many British retailers’ and manufacturers’ operations that it has become what’s known as a 4PL – running fourth-party logistics and supply chain services for many of its business customers: from handling their returns and refurbishing products to operating their customer helplines."

Jinks warned: "This enormous supply-chain knowledge is likely to be undervalued by Home Depot – which would consider the take over very much in the light of domestic US furniture and DIY deliveries. This is a flawed idea and it’s to be hoped it was nothing more than the result of pre-Christmas excitement."

On December 21, XPO Logistics reported a 24% spike in e-fulfillment volume at its US contract logistics facilities during the period of Black Friday through Cyber Monday, stating: "Consumers are driving the year-over-year growth as they increasingly turn to e-tailers for mobile flexibility and fast delivery times."

In August last year, XPO Logistics chief executive Bradley Jacobs said that the company could soon be going on another buying spree, he revealed a jump on net income to $75m in the first quarter of 2017, compared with $50.4m in the same period in 2016.

He told Reuters that the US-based logistics giant is pursuing “deals worth up to $8bn” but added  that any fresh acquisitions could be in Europe and North America.

In November 2017, XPO announced financial results for the third quarter 2017. Revenue was $3.89bn for the quarter, compared with $3.71bn for the same period in 2016.