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Robert.Jervis_43227 Feb 21

GXO to acquire Clipper Logistics

clipper gxo
Board approves acquisition, valuing Clipper at almost £1 billion...
The following is the formal announcement from Clipper 

"The boards of directors of GXO Logistics, Inc. (“GXO”) and Clipper Logistics plc (“Clipper”) are pleased to announce that they have reached agreement on the terms of a recommended cash and share acquisition by which the entire issued and to be issued ordinary share capital of Clipper will be acquired by GXO (the “Acquisition”).

FINANCIAL TERMS

• Under the terms of the Acquisition, Clipper Shareholders will be entitled to receive:

For each Clipper Share: 690 pence in cash and 0.0359 New GXO Shares

• Based on the Agreed Value of a GXO share, the Acquisition values each Clipper Share at 920 pence and values Clipper’s existing issued and to be issued share capital at approximately £965 million on a fully diluted basis.
• The Agreed Value of a GXO share is determined by GXO’s trailing 3-month volume weighted average price of US$86.20 and the trailing 3-month average USD/GBP exchange rate of 0.7432. On this basis, 0.0359 New GXO Shares is equivalent to 230 pence and accordingly, together with 690 pence in cash, the Acquisition values each Clipper Share at 920 pence.
• Clipper Shareholders will also participate in the potential future value creation in the Enlarged Group through the share element of the consideration.

IMPLIED PREMIA AND VALUATION MULTIPLES

• Based on the value of 920 pence per Clipper Share, the Acquisition represents:
• a premium of 49.1 per cent. to Clipper’s share price of 617 pence at the close of business on 27 January 2022, the last business day before GXO’s proposal was made to Clipper;
• a premium of 31.7 per cent. to 699 pence, being the 3-month average volume weighted price per Clipper Share up to 18 February 2022, the last business day before Clipper announced it had reached agreement on the key terms of a possible cash and share offer from GXO;
• a premium of 18.4 per cent. to Clipper’s share price of 777 pence at the close of business on 18 February 2022; and
• an implied enterprise value / 2022 adjusted EBIT (IAS 17 basis) multiple of 13.6x when factoring in full annual run-rate cost synergies and 27.0x pre-synergies.
• Based on GXO’s closing share price of US$84.38 and the USD/GBP exchange rate of 0.7455 on 25 February 2022 (being the last business day prior to this Announcement (the “Last Practicable Date”)), the terms of the Acquisition value each Clipper Share at 916 pence, valuing Clipper’s existing issued and to be issued share capital at approximately £961 million on a fully diluted basis and representing a premium of 17.9 per cent. to Clipper’s share price of 777 pence at the close of business on 18 February 2022, the last business day before Clipper announced it had reached agreement on the key terms of a possible cash and share offer from GXO.

COMPELLING STRATEGIC AND FINANCIAL RATIONALE

The Acquisition is a compelling strategic combination which significantly increases the opportunities for both businesses in the high-growth e-commerce/e-fulfilment area:

• Enhances GXO’s position as a successful, innovative and well-capitalised pure-play logistics leader, in particular in the fast growing e-commerce/e-fulfilment area.
• Adds to GXO’s geographic presence in Germany and Poland as well as vertical presence in life sciences, which are key growth areas.
• Combines highly complementary service offerings, customer portfolios, and footprints in the UK and Europe.
• Strengthens the combined business’s technology returns and repairs expertise.
• Brings together two natural partners with a very strong cultural fit; GXO is committed to protecting and building on Clipper’s entrepreneurial approach for the benefit of both businesses and their employees.
• Offers significant productivity opportunities, taking advantage of technology and infrastructure overlap in the joint enterprise.
• Enhances GXO’s ESG leadership position given Clipper’s reverse logistics and circular economy offerings and its robust internal targets to minimise carbon emissions and waste.
• Unlocks very significant synergies:
• Annualised EBIT run rate cost synergies of £36 million (pre-tax) expected, based on procurement, and other operational overlap that can be realised by the end of the third year post completion of the Acquisition;
• Compelling revenue synergies expected as a result of the significant opportunity to cross sell capabilities across a large, combined customer base;
• While synergies are expected from combining operations and support functions as well as functional support areas, GXO expects overall headcount will increase long-term as part of ongoing efforts to grow its UK operations.
• GXO expects the Acquisition to be immediately enhancing to underlying earnings per share, excluding synergies, and on a pro-forma basis double digit enhancing including full run-rate cost synergies.
• GXO expects the Acquisition to cover its cost of capital by the end of the third year post completion of the Acquisition.
• GXO believes the structure of the Acquisition will allow GXO to maintain its investment grade credit rating.

IRREVOCABLE UNDERTAKINGS

• GXO has received irrevocable undertakings (including from Steve Parkin, Executive Chairman of Clipper, as well as the other Clipper Shareholder Directors) to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting (and, if the Acquisition is subsequently structured as a Takeover Offer, to accept any Takeover Offer made by GXO) in respect of 23,893,180 Clipper Shares representing, in aggregate, approximately 23.3 per cent. of the existing issued ordinary share capital of Clipper. These irrevocable undertakings remain binding in the event of a competing offer.
• GXO has received irrevocable undertakings from certain Clipper Shareholders (including from Steve Parkin, Executive Chairman of Clipper as well as certain other Clipper Shareholder Directors) to elect to receive 50 per cent. of their consideration in the form of New GXO Shares in respect of 23,889,180 Clipper Shares representing, in aggregate, approximately 23.3 per cent. of the existing issued ordinary share capital of Clipper. These irrevocable undertakings remain binding in the event of a competing offer. As a result of these elections, there will be more cash available, in the aggregate, to other Scheme Shareholders who elect to vary the proportions in which they receive New GXO Shares and cash in respect of their Scheme Shares under the Mix and Match Facility than as compared to if these undertakings had not been made. Please refer to paragraph 18 of this Announcement for further details on the Mix and Match Facility.

UNANIMOUS RECOMMENDATION OF THE CLIPPER DIRECTORS

• The directors of Clipper, who have been so advised by Numis as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. Numis is providing independent financial advice to the directors of Clipper for the purposes of Rule 3 of the Code.

Accordingly, the directors of Clipper intend to recommend unanimously Clipper Shareholders to vote in favour of the Scheme at the Court Meeting and the resolutions to be proposed at the General Meeting (and, if the Acquisition is subsequently structured as a Takeover Offer, to accept any Takeover Offer made by GXO) as the Clipper Shareholder Directors have irrevocably undertaken to do in respect of their own Clipper Shares. In providing its advice, Numis has taken into account the commercial assessments of the directors of Clipper.

• Steve Parkin, the Executive Chairman of Clipper is committed to helping ensure a smooth transition.

TRANSACTION STRUCTURE

• The Acquisition will include a Mix and Match Facility, which will allow Scheme Shareholders to elect to vary the proportions in which they receive New GXO Shares and cash. The Mix and Match Facility will not change the total number of New GXO Shares to be issued or the maximum amount of cash that will be paid under the terms of the Acquisition.
• GXO intends prior to completion of the Acquisition to establish a CREST depositary interest dealing facility for the benefit of the Clipper Shareholders who hold their Clipper Shares in uncertificated form so as to facilitate the trading of the New GXO Shares from outside the United States.
• It is intended that the Acquisition will be implemented by means of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act.
• It is expected that the Scheme Document, containing further information about the Acquisition and notices of the Court Meeting and General Meeting, together with the Forms of Proxy, will be sent to Clipper Shareholders and (for information only) to holders of options granted under the Clipper Share

Schemes as soon as practicable and, in any event, within 28 days of the date of this Announcement (unless Clipper and GXO otherwise agree, and the Panel consents, to a later date).

• Subject, amongst other things, to the satisfaction or waiver of the Conditions, it is expected that the Scheme will become effective in the summer of 2022.

Commenting on today’s announcement, Steve Parkin, Executive Chairman of Clipper said:

“As founder of Clipper, I am incredibly grateful to all the employees, customers and shareholders who have supported our company through this journey, from our IPO in 2014 at 100p, and enabled us to become a highly valued leader in e-logistics and other high value-added logistics services. The offer from GXO presents a compelling opportunity for us to continue to grow our service offering, by partnering with a global, technology driven logistics company. We have accomplished so much, and I am confident the combination of our two companies means the best days are ahead.
In recommending this offer to shareholders, the directors of Clipper believe it is in the best interests of all the company’s stakeholders. The offer from GXO gives shareholders the opportunity to receive a high portion of cash at a significant premium to the prevailing share price and a premium to the all-time closing high, whilst also being given the opportunity to benefit in the potential future upside in the combined group through the element of share consideration. It will give Clipper an enhanced opportunity to develop its business as part of a larger global group with the resources to capitalise on attractive market opportunities.”

Commenting on today’s announcement, Malcolm Wilson, Chief Executive Officer of GXO, said:

“Together, GXO and Clipper have a one-of-a kind growth opportunity, building on our shared commitment to a top-quality customer experience, innovation and industry leading expertise. Steve Parkin and the Clipper team have created an exceptional business with outstanding capabilities. We will build on it. Our combined complementary customer portfolios and breadth of offerings in high growth areas will affirm GXO’s position as a leading pure-play logistics provider. We’ll strengthen our returns and repairs capabilities, expand our e-commerce customer base, and bolster our presence in key growth areas, including Germany, Poland and life sciences, and accelerate the expansion of GXO Direct to Europe.

"We believe our very strong cultural fit, deep familiarity with local industry dynamics and commitment to invest and grow in highly attractive markets will enable a seamless integration. On behalf of our more than 100,000 GXO team members, including 33,000 in the UK, I look forward to welcoming Clipper’s talented people to our organization. We’re very excited about the tremendous possibilities ahead and the value we can create for customers, employees, shareholders and the communities we serve.”