The past few years have seen a sharp increase in business at warehousing and delivery company Clipper Logistics (LSE: CLG). That has been good for the Clipper Logistics share price. It has increased 56% over the past year. Now news of a takeover offer has pushed the shares to an all-time high.
What might happen next?
Right place, right time
Clipper had already been building an attractive business with its warehousing, fulfilment and management of online deliveries and returns. With the growth of digital commerce, the company’s expertise was set to help it profit. The past couple of years have sped up Clipper’s development, with a surge in demand for the sorts of services it offers.
That investment case helps explain the increase in the Clipper share price in recent years. The company offers investors exposure to the growth in digital commerce, but does not tie them to the fortunes of a single retailer.
Clipper takeover offer
Investors are not the only people who have been watching Clipper’s rise with interest. The fragmented online fulfilment industry is ripe for consolidation. Some companies have been growing their global presence. One such firm is US-based GXO Logistics. GXO is already a big player in outsourced warehousing and logistics. It is seeking to expand its international business and Clipper looks like a fit for its strategy.
Clipper announced today that its directors have agreed to the key terms of an offer for the company by GXO. The offer is in cash and shares. The cash component is £6.90 per Clipper share. The share component is effectively £2.30 worth of GXO shares for each Clipper share. So, the offer values Clipper at £9.20 per share. In this morning’s trading the Clipper share price reacted positively to the announcement, moving up to £9 at one point. Although the companies’ boards have agreed the key terms, that does not mean an offer is actually on the table at this point. So there is no guarantee that GXO will definitely make such an offer.
What comes next
Although Clipper’s board has accepted the key terms, the final say in such matters rests with shareholders. I would expect most Clipper shareholders to back the deal if it proceeds, given its attractive terms. In that case, the share price between now and the deal closing will likely hover close to the offer price.
Another company could make a hostile offer and try to trump GXO. To be successful, I think they would need to make a materially higher offer than the GXO one. The board’s support for a GXO offer makes such a bid less likely in my view, but it could still happen. If it did, that could drive the Clipper Logistics share price even higher.
My next move on the Clipper Logistics share price
I have always been impressed by the Clipper business but had concerns that its valuation made it a bad fit for my portfolio. It is now trading on a price-to-earnings ratio of 40, which for a logistics business I think is expensive. I believe the shares should hold roughly their current price unless the GXO bid fails to proceed. If that happens they could fall sharply.
So, after the recent run-up in the Clipper Logistics share price, I will not be adding the company to my portfolio.
