Key Highlights

● C.H. Robinson plans to take on about $3 billion of new debt to help fund its RXO acquisition.

● The company paused share buybacks until leverage falls to 1.75-2.25 times adjusted EBITDA.

● RXO shareholders get $30.25 per share under the deal terms, while RXO's own stock surged on the news.

C.H. Robinson finished Monday at the bottom of the S&P 500 after its RXO takeover plan came with about $3 billion of new borrowing and a halt to share buybacks.

The bottom of the board

C.H. Robinson Worldwide (NASDAQ:CHRW) tumbled on Monday, Oct. 5, ending the session as the worst performer in the S&P 500. The closing price was put at $141.34, and while reports differed slightly on the exact size of the fall, all agreed it led the index lower.

The freight broker announced a deal to acquire truck broker RXO (NYSE:RXO) in a cash-and-stock transaction valued at about $5.8 billion including debt. RXO holders get $17.25 in cash plus 0.0856 of a C.H. Robinson share, worth $30.25 per share under the deal terms.

But the headline price was only part of the story. The deal terms also included new borrowing and a pause in buybacks, though no report singled out one factor as the cause of the drop.

Borrowing up, buybacks off

C.H. Robinson plans to take on about $3 billion of new debt to help fund the deal. More borrowing means higher interest costs, and it arrives at a time when long-term borrowing costs are elevated: the 10-year Treasury yield rose on Monday to its highest close since 2002.

The company also said it will pause share buybacks until leverage returns to a range of 1.75 to 2.25 times adjusted EBITDA. Buybacks reduce the share count and can support a stock's price, so halting them removes a source of demand for C.H. Robinson shares while the company focuses on paying down debt.

The deal also includes a large stock component. Issuing new shares to RXO holders means existing C.H. Robinson owners will share future profits with a bigger group of shareholders.

What management is promising

Management made the case that the deal will pay off. The company is targeting $300 million in annual cost synergies within two years and expects the transaction to add to adjusted earnings per share within nine months of closing. The deal is expected to close in the first half of 2027.

Chief executive Dave Bozeman said the merger is "a natural next step in our transformation, allowing us to create a more scaled, resilient North American third-party logistics provider."

The boards of both companies approved the deal unanimously, and RXO's largest holder, Orbis Investments, supports it. Reports flagged that the combination could face regulatory scrutiny because C.H. Robinson is North America's largest freight broker. RXO would owe a $175 million termination fee if certain conditions block the closing.

RXO shares, by contrast, surged, closing around $28.65.

Markets shrug off yields

The broader market held up well. The S&P 500 rose 51.23 points to 7,773.95, just shy of its summer record. The Nasdaq Composite climbed 286.45 points to a record close of 27,477.31, while the Dow Jones Industrial Average added 90.94 points to 51,267.90. As a member of the Dow Jones Transportation Average, C.H. Robinson was a drag on transport stocks.

Friday's soft jobs report, which showed just 29,000 jobs added in September, cooled expectations of another Federal Reserve rate hike in October. But stubborn inflation signals kept long-term yields climbing: the ISM services prices-paid index hit its highest level since July 2022.

What to watch

Investors will watch for details on the new debt financing and any regulatory review as the deal heads toward its expected closing in the first half of 2027. The Federal Reserve publishes minutes from its September meeting on Wednesday, Oct. 7, at 2pm ET, and the Fed meets again on Oct. 27-28. C.H. Robinson's next quarterly report should give management a chance to explain its leverage plans and the timing for restarting buybacks.