More on XPO deal

http://www.bloomberg.com/news/articles/2015-04-28/xpo-logist…

Wow. All financed with cash and debt (no equity). Favorable exchange rate made deal even better!

Chris

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Investing in ever more socialist France does not excite me. I’ve heard too many horror stories of the power of French unions.

Denny Schlesinger

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I am leary of companies that expand by purchasing other companies. If nothing else on the basis that the seller knows more of the hidden warts than the buyer. OTOH, there appears to be few individuals who are exceptionally talented at buy outs. Jacobs seems to be one of these.

He is sticking to business not diversifying into areas that he knows nothing about.

Many buy-outs seem to be based on the CEO being able to say “mine is bigger than yours” to his buddies at the Country Club. And of course having a bigger company (even if not making more money than it did when smaller) helps justify larger salaries.

I am also not fond of too much debt but this is a semi stable business . not a biotech,and today’s interest rates will seem absurdly low in a few yeear when inflation comes back.

Good insight about exchange rates (not in the article). The dollar is king ,at least for the nonce. In terms of the EU after years of fluctuation it is about back where it started.

doing business in France

http://business.time.com/2013/02/01/goodyears-french-nightma…

Mauldin has said France may be the next Greece like situation in the EU
It is progressively a little less competitive every year.

OTOH , XPO is computer intensive not labor intensive. The software can be written anywhere in the world. The computers aren’t made in France. There probably won’t be very many union jobs at XPO.

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OTOH , XPO is computer intensive not labor intensive. The software can be written anywhere in the world. The computers aren’t made in France. There probably won’t be very many union jobs at XPO.

Being practical, with three or four thousand stocks to pick from, when you only need maybe a dozen, why go for the difficult ones?

Denny Schlesinger

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But, is it actually difficult? It is for me because I don’t feel like I understand the industry, but I’m not going to knee jerk decide it is a problem just because a piece of the business is in France any more than I am going to write off every Chinese company just because they are Chinese.

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Actually, it’s both information intensive and labor intensive. So far, those trucks do not drive themselves.

As for all the horror stories of French business, chill out. Despite the difficulties, the French actually do have a vibrant business community. They do get stuff done. Workers are maybe “over” protected which leads to some problems - mainly inefficiencies. We have our own built in inefficiencies such as grossly over-paid executives, but because they aren’t labor we tend to ignore it.

I worked at a major aerospace firm in the Pacific Northwest (try and guess which one). I saw management piss away millions of dollars based on nothing more than their notions, even if they were demonstrably absurd notions. I could give you tons of examples, so if you think American business has got all the aces and the French are a bunch of jokers you’d be way far wrong.

In my travels and observations (and they are extensive) every culture has a bunch of built-in problems. We tend to see the warts elsewhere, but not our own.

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So far, those trucks do not drive themselves.

Not that I claim any expertise on XPO, since all I know about it is from following, sometimes, the conversation here, but I thought they were brokers, i.e. the truck drivers would not work for XPO.

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I’m not going to knee jerk decide it is a problem just because a piece of the business is in France any more than I am going to write off every Chinese company just because they are Chinese.

No one is asking you to.

I’ve said on many occasions that I avoid foreign stocks on account of the ForEx risk. To invest in a foreign stock I have to have an extra good reason. French labor laws are not such a reason, quite the contrary. Did you read the long thread about how to figure out the CRTO numbers? I don’t need that complication. BTW, I agree with Saul’s position because I’m not a business owner but an investor and my reference currency is the US dollar.

I’m long XPO. I didn’t like the chart last week so I sold covered calls. If I get called I’m not likely to buy it back but if the calls expire worthless I’ll probably sell more. Would you call that a “knee jerk reaction?”

BTW, I also own two Chinese stocks so I don’t “Chinese knee jerk” either. LOL

You can bet your bottom dollar that I’m not going to be politically correct in where I put my investment dollars. If I see an extra hurdle in a stock, I’ll take it into account and won’t consider that to be “knee jerk.”

Denny Schlesinger

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I’m not inclined to jump on the XPO bandwagon, particularly after this acquisition. I was mildly interested in the company as an expediter/logistics handler (emphasis on “mildly”). I once worked for a customs expediter (one of my very first jobs) and understand there is money to be made in the business. But, especially with this acquisition, XPO is wading ever deeper in the freight asset business (i.e., trailers and trucks). That’s a far tougher business to manage and recessions can wreak havoc.

But that’s not my primary concern. I was interested enough in the company to actually read its 2014 Annual Report…something every investor should do if evaluating any investment prospect. I was decidedly underwhelmed (Mr. Thesaurus can search for other terms if he so wishes). One can access the Annual Reports from XPO’s website. To simplify matters, I’ll simply link to a few Yahoo summaries:

First, the Income Statement:

http://finance.yahoo.com/q/is?s=XPO+Income+Statement&ann…

XPO’s net income fell from a loss of $23.3 Million in 2012 to a net income loss of $107.4 Million in 2014. Color me unimpressed.

Next, the Balance Sheet:

http://finance.yahoo.com/q/bs?s=XPO+Balance+Sheet&annual…

Net tangible assets grew from $166.6 Million in 2012 to net tangible assets of $384.3 Million in 2014. Kinda looks OK (on the surface) until you consider that total liabilities rose from $168.1 Million in 2012 to $1.1 BILLION in 2014. Equally disturbing is that “Goodwill” grew from $55.9 Million in 2012 to $929.3 Million in 2014. Anyone who has ever spent a bit o’ time as an investor recognizes the perils of “Goodwill” on balance sheets.

Finally, there’s the Cash Flow statement:

http://finance.yahoo.com/q/cf?s=XPO+Cash+Flow&annual

Cash flow from operating activities in 2014 is a NEGATIVE $21.3 Million. But, hey, it gets worse: cash flow LOSSES from investing activities increased from ($64.2 Million) in 2012 to a loss of ($858.3 Million) in 2014. But, XPO reported a net increase in cash and cash equivalents! How did they do that, you ask? By selling over a million dollars in stock and borrowing an additional $414.6 Million. Folks, QE (here and abroad) ain’t gonna last forever. Once interest rates begin to rise, servicing those debts will grow ever more expensive.

Jim Chanos, a celebrated short-seller (whom I respect) often warns of “serial acquirers.” I suggest that XPO’s financials illustrate how one might make a company seem financially respectable…as long as one ignores the ever increasing goodwill, long-term debt and share dilution.

I’m a conservative investor. I’m gonna pass on XPO.

I suggest folks read the Annual Report(s) carefully before they decide for themselves.

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XPO will become a lot more labor intensive than it used to be. Norbert Dentressangle brings along a baggage of 42,350 employees. MarketCap per employee is not a standard measurement but it will have to do because I’m too lazy to calculate Revenue per employee. XPO was right up there with UPS at over $330,000 MarketCap per employee. After the merger it will drop to around $130,000 MarketCap per employee.


**Ticker     MarketCap    Employees      MC/E** 
ups     90,980,000,000    237,300    383,397
xpo      3,380,000,000     10,000    338,000
fdx     48,590,000,000    231,500    209,892
gnd      3,530,000,000     42,350     83,353
**xpo+gnd  6,910,000,000     52,350    131,996**

I would not want so many on my French payroll!

Denny Schlesinger

BTW, I also own two Chinese stocks so I don’t “Chinese knee jerk” either. LOL

That actually was my point, Denny. As you know, many people have that reaction to Chinese stocks, but you are willing to consider individual cases. I was merely suggesting that the same apply to French companies.

That actually was my point, Denny

It sure didn’t come across that way! It sounded more like the indictment of a xenophobic fuddy duddy. :wink:

Foreign stocks have additional risks and fewer protections than American stocks and it is worth paying attention. Not too long ago Brazil was a big disappointment for SYZM investors. Fantastic beaches, incredible music, the sexiest mulatas in the world, World Cup soccer… but there are better places for my money. :wink:

A closer look at XPO reveals that the European acquisition makes it much more labor intensive than it used to be. Somewhere along the line XPO will butt heads with EU labor laws.

Denny Schlesinger

Don’t know about the acquisition but XPO is not a trucking company. It’s employees are not truck drivers.They are expediters, most of the sourcing being done by computers.

from their web page

.Our expedite team can assign your load to a vehicle or aircraft, or enter it for bid in our transportation management system – the industry’s largest expedite TMS – where carrier sourcing takes less than 24 minutes on average.

http://www.xpologistics.com/services/expedited

I see now that the EU acquisition does indeed make XPO more labor intensive. But a guess is that they will sell off that bit of the company and keep the expediter part
.
I will sell out if they become a trucking company… Perhaps XPO sees big inefficiencies in the trucker part of it, who knows. But splitting it up via a sale or spin off makes more sense to me. This is a lot easier to do in a non family owned business.

xenophobic fuddy duddy

Not me. I am in KNDI and AMAVF among others.

I recognize that there are issues with other economies and cultures which are legitimate issues to consider when investing. It just seemed that you were being dismissive of something French because it was French and that this was a contrast to your investing in China, which a significant number of people avoid, where you were thoughtful about considering the individual case.

To be sure, one of the things I would wonder about with the XPO acquisition is that European labor standards would make it prohibitively expensive to trim that work force substantially. If that were their intent and they were somehow unaware of the issue, it could put quite a different spin on the acquisition.

European labor standards would make it prohibitively expensive to trim that work force substantially

All depends on who they execute the trimming. If through lay-offs and early retirement, absolutely correct. However, if they sell the business unit then the exiting employees are simply part of the transaction - not a problem.

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It just seemed that you were being dismissive of something French because it was French and that this was a contrast to your investing in China, which a significant number of people avoid, where you were thoughtful about considering the individual case.

I wrote:

“Investing in ever more socialist France does not excite me. I’ve heard too many horror stories of the power of French unions.”

You are probably upset because it’s not a nice PC thing to say. France is a free country and they chose to be socialist and union heavy. I see no reason not to call a spade a spade, specially if it keeps you out of bad investments.

Denny Schlesinger

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