In a deal stunning in its scope, two of the largest freight brokerages in the U.S. will become one company with C.H. Robinson acquiring RXO.
Although there is little indication that the deal was driven by the legal fallout from the Supreme Court decision on broker liability in Montgomery vs. Caribe Transport II, the deal may kickstart in a huge way the expected consolidation of the brokerage industry that the court decision is seen as spurring. The size of the deal is so enormous and so sweeping that it will almost surely put the management of other 3PLs on notice that they will need to consider whether they will be an acquiring company or one that gets gobbled up in the new landscape.
As far as the role Montgomery played in the case, C.H. Robinson (NASDAQ: CHRW) CEO Dave Bozeman said in a telephone interview with FreightWaves that the impact of that decision and its remaking of the question of broker liability was not a factor in its acquisition of RXO (NYSE: RXO).
Technology may be key to the deal
Even if Montgomery is not a factor, what is highly likely is that technology is.
What C.H. Robinson in its statement and the Monday morning call with analysts did say is that it expects to generate $300 million “of net run rate cost synergies within two years post-close by utilizing C.H. Robinson’s proven Lean AI operating model to enhance productivity, driving profitability and creating shareholder value.”
While C.H. Robinson has been the poster boy for AI-driven productivity improvements, RXO has been challenged in selling its own story. It has posted negative net income for 10 consecutive quarters. While its earnings statements have touted its growth in volume and sought to feature its own gains in AI-driven productivity, it has not been able to meet the standards that have been set by C.H. Robinson under Bozeman’s tenure.
Its use of AI on top of the Lean operating structure has led it to post a generally improving earnings stream while it has been cutting headcount.
Bozeman said the deal aligns with “what we have said all along, that you’ll see consolidation within this industry. You’re going to see small to medium brokers and small to medium carriers. There’s some consolidation that will happen there for a number of different reasons.” He did say Montgomery might be one of those reasons.
But the C.H. Robinson acquisition of RXO does not come close to fitting the definition of a deal involving small to medium anything. Bozeman said industry consolidation will also involve “some scaled brokers and consolidation, and that’s what you’re seeing today. We feel super good about it.”
Getting back into M&A in a big way
Bozeman took over as C.H. Robinson CEO in 2023. When the company reported its first quarter earnings in 2024, the sequential performance was strong enough to shock markets, and it was the first time Bozeman got to tout his implementation of what he called “Lean AI” as the driving principle at C.H. Robinson.
Since Bozeman took over, C.H. Robinson has made one acquisition: DeSpir Logistics, announced in June.
It has now made acquisition two in a gigantic way.
“If you look at our strategy, which was let’s start with organic at first, and we were very disciplined on our organic ROI,” Bozeman said. “Build our house first. Our team wanted to do M&A deal, but we had to earn the right to do that, and so we had to build our house up. And I think we did. We’ve got the best cost-to-serve model out there.”
The transportation research team at Truist said the deal was “strategically logical and a natural extension of CHRW’s ongoing transformation.”
“Over the past several years, CHRW has demonstrated meaningful productivity and margin improvement through its lean AI operating model, and the RXO acquisition gives the company an opportunity to apply that operating framework across the substantially larger logistic platform,” Truist said in a report filed soon after C.H. Robinson’s call with analysts ended.
Crazy movement in RXO stock price
RXO’s stock price was north of $30 in the summer of 2024. And while it has performed well in the last year even before the boost in price from the C.H. Robinson announcement, the reality is that the stock price sunk as low as $10.43 on November 18.
At approximately 10:20 a.m. Monday, RXO stock was up 22.5% to $28.65, a gain of $5.26.
RXO stockholders will receive $17.25 per share in cash and 0.0856 shares of C.H. Robinson common stock for each RXO share they own, representing an implied total consideration of $30.25 per share. While the value of the deal, according to C.H. Robinson, was estimated to be $5.8 billion, the total value of the deal won’t be known until it closes in several months given the variable price of C.H. Robinson stock.
However, there is also an option for RXO shareholders to take either an cash payout of $30.25 per share or an all-stock consideration of 0.1992 shares of C.H. Robinson common stock for each share of RXO.
On paper, the payout that would involve C.H. Robinson stock already took a hit Monday given the decline in C.H. Robinson’s stock price. At approximately 10:25 a.m., C.H. Robinson was down 11.71% to 139.25, a drop of $18.47.
The increase in RXO’s price Monday is completely explainable given the cash and stock value of the deal that C.H. Robinson puts at $30.25/share, based on RXO shareholders receiving $17.25 per share and 0.0865 shares of C.H. Robinson stock for each share of RXO stock.
What is less explainable is the runup of RXO stock late last week. RXO stock rose 16.2% combined on Thursday and Friday compared to the Wednesday close. On Friday, its trading volume was 3.67 million shares. Average daily volume is usually around 1.9 million shares.
In the options market, where a possible leak of insider information has known to play out in the past, the average daily options volume in RXO per Barchart is 73 contracts, with each contract representing 100 shares. Options volume Friday was 290.
Barchart reported Friday that RXO’s short interest was around 10% of its average daily “float,” a number that would be considered high.
The action in the stock suggests that once the stock started moving higher for whatever reason, the owners of those short positions may have piled in to cover their shorts, adding on to the initial price surge.
More articles by John Kingston
FMCSA’s Elison: ‘weeks’ away from fixing Motus user experience
Daimler Truck: concerned about using cash to avoid new NoX rules
For transportation cybersecurity, AI isn’t helping fight..so far
The post UPDATE: C.H. Robinson acquisition of RXO may give a jolt to industry consolidation appeared first on FreightWaves.
