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December 2, 2020 5:15 PM, EST

XPO Logistics Plans to Split Into Two Companies

An XPO Logistics truckXPO Logistics

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XPO Logistics Inc. has announced a plan to split itself into two companies — one focused on its trucking and brokerage businesses, the other on its logistics operations — in a move that the company’s leader believes will strengthen both platforms.

“By uncoupling our transportation and logistics segments, we intend to create two high-performing, pure-play companies to serve the best interests of all our stakeholders,” Brad Jacobs, chairman and chief executive officer of XPO Logistics, said in a Dec. 2 company statement. “We currently believe that this spinoff is the most effective way to unlock significant value for our customers, employees and shareholders.” For example, Jacobs noted that the separate companies will have greater flexibility for capital allocation and strategic decision-making.

The move marks the resumption of a plan XPO started to explore late last year. In January, the company said that its board of directors had authorized a review of strategic alternatives, including the possible sale or spinoff of business units. But in March, XPO scuttled the review out of concern for the growing economic fallout from the COVID-19 pandemic.

Jacobs

Jacobs

One component of breaking the company in two is taking advantage of tailwinds in each segment of the business. For example, XPO said large customers are accelerating their outsourcing of logistics. The stand-alone logistics company would invest in technology and services to meet those customers’ needs, especially in automating supply chain logistics.

The logistics company also would be better positioned to react to the boom in e-commerce, which is making supply chains more complex. Customers increasingly expect orders for everything, including large items such as appliances, to be filled quickly. Plus, returns can represent a significant percentage of freight. To help this shift, the company’s logistics side has been investing in advanced automation and intelligent machines, including robots, automated sorting systems, automated guided vehicles and goods-to-person systems.

 

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“Our logistics business in North America is in a strong position for growth, with a high contract renewal rate and substantial new business wins,” the company said.

XPO’s less-than-truckload and truck brokerage businesses also have growth potential, the company said. It expects that side of the business to log $1 billion in EBITDA, or earnings before interest, taxes, depreciation and amortization, in 2022.

On the LTL side, XPO has been investing in intelligent route-building, which can reduce empty miles, improve load factor and mitigate cargo damage, it said. “The route-building process lets us deploy trucks deeper into the network, and the freight is handled fewer times, which saves time and costs,” XPO said.

The company’s truck brokerage business also is growing, posting a net revenue gain of 17% in the third quarter compared with the same period a year earlier.

Finally, separating the business will allow each to be valued independently by the investment community. That would enable the companies to increase their equity value regardless of what was going on with the former company.

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“The spinoff should create two companies with clear business lines and easier public market comps,” said Cowen analyst Jason Seidl in a Dec. 2 research note. He added, “Our thesis for XPO has essentially been, ‘the market will recognize the value of the whole company or the company will take steps to make that easier.’ ”

The tax-free transaction, which will create two publicly traded companies, is expected to close in the second half of 2021. Current XPO shareholders will own stock in both companies, and both would be traded on the New York Stock Exchange.

For purposes of the transaction, XPO plans to call its trucking and brokerage business XPORemainCo. The contract logistics business is being called NewCo. The companies will receive new names at a later date. Upon completion of the transaction, Jacobs would be chairman and chief executive of XPORemainCo. He also would become chairman of the NewCo. board. Troy Cooper will continue to serve as XPORemainCo.’s president. XPO has not named the spinoff executives, but current leaders would stay as managers of the business unit.

XPO ranks No. 1 on the Transport Topics Top 50 list of the largest logistics companies in North America and No. 3 on the Transport Topics Top 100 list of the largest for-hire carriers.

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