XPO splits business into LTL, brokerage companies

XPO Logistics announced March 8 that its board of directors has approved a plan to separate its tech-enabled brokered transportation services from its less-than-truckload (LTL) business in North America and that the company also intends to divest its European business and North American intermodal operation.

The planned spinoff is intended to be tax-free to XPO shareholders and would create two publicly traded companies at the top of their industries, according to a company release, which also said:

The spinoff would be a leading platform for tech-enabled truck brokerage services in North America, with a long track record of revenue and margin growth, an efficient digital freight marketplace and access to vast truckload capacity, with complementary, asset-light offerings for last-mile logistics, managed transportation, and global forwarding. The brokerage’s corporate headquarters is expected to be in Charlotte, North Carolina.
Upon completion of the spinoff, XPO’s North American LTL segment would be the third largest provider of domestic and cross-border LTL freight shipping, with a network of transportation assets managed by proprietary technology, according to the company. The stand-alone business would focus on enhancing the growth and profitability of its national network for the benefit of its stakeholders, according to XPO. The LTL corporate headquarters is expected to be in Greenwich, Connecticut.

The company plans to divest its European business through either a sale or a listing on a European stock exchange. In North America, the company is under an exclusivity agreement in connection with a potential sale of its intermodal business, which provides rail brokerage and drayage services.

Brad Jacobs, chairman and CEO of XPO Logistics, said: “Our two core businesses of North American less-than-truckload and tech-enabled truck brokerage are industry-leading platforms in their own right, each with a distinct operating model and a high return on invested capital. We believe that by separating these businesses through a spinoff, we can significantly enhance value creation for our customers, employees and shareholders, as we did with our successful spinoff of GXO last year.”

The company expects to complete the planned spinoff in the fourth quarter of this year, subject to various conditions, including the effectiveness of a Form 10 registration statement, receipt of a tax opinion from counsel, the refinancing of XPO’s debt on terms satisfactory to the XPO board, and final approval by the XPO board, among other requirements.

Additionally, XPO issued other strategic and financial rationale for the split:

Each company will benefit from an undiluted focus on strategic priorities, customer requirements, and stakeholder interests, with its own management teams and cultures.
Both companies are expected to generate a high return on invested capital and robust free cash flow based on the historical performance of the core businesses they encompass, and both will have greater flexibility in allocating capital, according to XPO.
The aggregate trading price of the stocks of the two stand-alone companies is expected to be higher than the price that XPO’s stock would trade at if the two businesses remained combined, allowing each company to use its stock to pursue strategic objectives—including acquisitions—and to increase the long-term attractiveness of its equity compensation programs, with less dilution to existing stockholders.
Each company will have a robust balance sheet with low net debt leverage and strong financial characteristics on day one of the spinoff and will pursue an investment-grade credit rating.
Each company will be able to deepen its differentiation as a customer-centric innovator by focusing technology resources on enhancing proprietary software developed for its specific services and end-markets.
Both companies will be better positioned to attract and retain world-class talent by offering meaningful equity-based compensation that correlates more closely to performance and the interests of their respective stockholders.

Post-spinoff, the remaining company will be the third largest North American provider of LTL services, with significant competitive advantages, including its position as one of the few national LTL networks in the U.S., 130 commercial truck driver training schools and a company-owned trailer manufacturing facility in Arkansas. A team of about 21,000 employees serve 25,000 accounts.

As of the end of 2021, XPO’s North American LTL segment had an integrated network of 291 terminals, about 12,000 professional drivers, and equipment assets of about 7,900 tractors and 25,800 trailers.