Source: XPO Logistics
XPO Logistics announced after the closing bell Tuesday it will become solely a trucking company, spinning off its high-tech truck brokerage business into a separate publicly traded firm.
“This is one great company becoming two great companies.” XPO Chairman and CEO Brad Jacobs told CNBC. “There’s a large universe of investors who want to invest in a pure-play like LTL [less-than-truckload trucking] that’s asset-based with a high return on capital and levered to the ongoing industrial recovery.”
He added: “There’s also a separate universe of investors who want to invest in an asset-light, tech-enabled truck brokerage platform that the spin-off will be.”
The remaining trucking business will retain current management including Jacobs, the ticker symbol XPO and headquarters in Greenwich, Connecticut. XPO will focus solely on LTL, where the company gets 33% of revenue.
LTL trucking, which allows multiple customers to ship goods in the same truck, has become increasingly in demand during the global supply chain disruption caused by the Covid pandemic as full truckload capacity has become more expensive and difficult for companies to find.
“We’ve managed the LTL business very well. We generated over $3 billion in net cash and improved margin by 910 bps since we bought the business. It’s going to be even more focused post-spin,” Jacobs said.
The truck brokerage business — which includes last mile delivery, freight forwarding and managed transportation — is expected to begin trading under a new name by the end of 2022. It will have a separate management team, with headquarters in Charlotte, North Carolina.
XPO also has an agreement with a potential buyer for its intermodal business that ships containers. If that deal does not close by March 18, however, XPO said the container shipping business will be included in the spinoff.
The company will divest its European business, which includes both trucking, truck brokerage and other services either through a sale or a listing on an European exchange.
Tuesday’s announcement is a departure from XPO’s growth strategy between 2011 and 2015, which included the 2015 acquisition of LTL trucker Con-Way for $3 billion.
In March 2021, XPO announced it would spinoff its contract logistics business into a separate publicly traded company called GXO. Those shares began trading back in Aug 2. Including a nice move higher in regular trading Tuesday, GXO has gained roughly 17% since then compared to a nearly 4% decline in the S&P 500 over that same stretch of time.
“We learned from the GXO spin that when you have a management team doing one thing, they’re more focused and fit for purpose to drive growth,” Jacobs said. “We also learned that by creating a pure-play industry leader, you become easier to understand for investors and eliminate.”
XPO is the third largest LTL carrier in the U.S. by revenue. Customers include Caterpillar and Tractor Supply. XPO’s North American LTL business reported more than $4.1 billion in revenue in 2021, with 16% growth year over year.
The pricing of shares and how many shares of the new LTL company current XPO shareholders will receive is still being decided. XPO has retained Goldman Sachs, Morgan Stanley and BofA Securities to assist with the spinoff.