FreightWaves Today | October 5

Craig (0:23)

Welcome to FreightWaves. Today, it's Monday. And look, we're starting the week off super strong with a major merger announcement. The largest merger in brokerage history.

Julie (0:34)

CH.

Craig (0:34)

Robinson is acquiring RXO, the number three broker, number one buying number three. This is definitely consolidation happening in the freight brokerage space. Julie, I woke up this morning. I'm going on vacation on Wednesday, and I'm thinking this is gonna be a super chill week. I'm gonna be able to focus on something other than the news because there hadn't been a whole lot. It's been sort of a quiet couple of weeks. We had a busy first half, and then they go and do something like this.

Julie (1:02)

Yeah, not a quiet week.

Craig (1:04)

Not a quiet week at all. The biggest transaction in truck brokerage history, and of course nothing is bigger than CH. Robinson. Robinson is buying a very large business, and of course Coyote, RXO bought Coyote a couple years ago.

Probably timing was a little bit off, you could say, on that transaction, but now is getting the momentum. And then they're buying it at the top of the market, in terms of stock price, really all-time highs for RXO. But when you look at the deals, this is a no-brainer from CH. Robinson's perspective. Yes, they're paying a big number, but the synergies that CH. Robinson is discussing makes complete sense. I've talked to a number of people this morning that have said their expectation, they're trying to sort of say, well, this is the reason they're doing it, not the reason. Think it comes down to the $300 million in cost synergies. And anyone who's ever done M&A knows that, I mean, look, Bozeman, over the last couple of years, has gotten an enormous amount of cost synergies out of CH. Robinson. And at some point, you kind of run out of sort of low-hanging fruit. And when you bring in a business like RXO at the scale, that, you know, there's real estate synergies, there's platform synergies, there's customer synergies, there's costs, a lot of it's not just people, people's a piece of that. But Bozeman has proven that he knows how to make these businesses really work.

Julie (2:25)

Yeah, I mean, it's so much more freight going through systems and platforms that they've already invested in and have, right? So, from a technology standpoint, it makes a lot of sense.

Craig (2:32)

I mean, it is an exciting transaction.

I think it will kick off, my sense is it's gonna kick off more M&A. I think we're to see, you know, TQL being the second largest freight broker has not really been an acquirer, has not done. They've always been teased, every time there's a big deal, everyone's like, well, TQL is looking at it. I'm sure they do. There's no cost to look, as they say, in M&A world. But executing is something different. Now, CH has done some big transactions in the past, not at this scale. And of course, if you follow the RXO story, when it was part of XPO, a Brad Jacobs company, this does feel like to a degree, Brad Jacobs is, who's going to be at F3, by the way, and we're going to ask Brad for what he can talk about. Now, he is not directly involved in RXO any longer, and hasn't been for some time, but he is, was, I don't know where he's at in terms of shareholder, but I imagine he still had a substantial position in RXO. We're going to ask Brad at F3, he'll be at F3, get your tickets today.

Now, unfortunately, the RXO team and the CH team, because this is such a big deal, can't talk about it publicly, so we're going to have to just read the tea leaves here, but this does feel like it's going to set up more M&A.

Julie (3:43)

Yeah, I agree, and Brad actually already did post today that he makes total sense to him.

Craig (3:47)

Yeah, well, he's MFN Partners, also one of the, they own 15% of RXO, has already blessed the deal, I imagine, that the board had wanted to get consent from RXO's largest shareholder, but they have come out and said they support the deal, and this just makes complete sense. I do think we're going to see more M&A, and look, in an environment where, in a post-Montgomery environment, it makes sense that you would want to de-risk for your shareholders.

Platforms really have a lot of scale, but I think it comes down to the quote-unquote $300 billion in synergies that are at RXO. I don't know if, in production, if we can take that to an all-time chart. We can zoom out on that, because it's up to $30. It's up 21% there, but there we go. So the all-time high was right at $30 a share. This is what CH. Robinson is paying. It's a combination of cash and stock, but they're giving the option of shareholders to take either or, a combination of all above. At the end of the deal, they expect RXO shareholders to own 11% of a combined entity. What's interesting is Coyote, who was bought by UPS, didn't fit in that culture, is now being acquired as part of this deal. Feels like the end of an era, to a degree.