XPO Logistics, Inc. announced that its board of directors, after a thorough examination of strategic alternatives, has approved a plan that the board believes is the optimal path to unlock value for XPO stakeholders. XPO intends to separate its tech-enabled brokered transportation services from its less-than-truckload (LTL) business in North America and intends to divest its European business and North American intermodal operation.
The planned spin-off transaction is intended to be tax-free to XPO shareholders and would create two focused, publicly traded companies at the top of their industries:
- The spin-off would be a leading platform for tech-enabled truck brokerage services in North America, with a long track record of industry-best revenue and margin growth, a highly 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 corporate headquarters are expected to be in Charlotte, North Carolina.
- Upon completion of the spin-off, XPO’s North American LTL segment would be a pure-play LTL industry leader — the third largest provider of domestic and cross-border LTL freight shipping, with a competitively advantaged network of transportation assets managed by proprietary technology. The standalone business would have a singular focus on enhancing the growth and profitability of its national network for the benefit of its stakeholders. The corporate headquarters are 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 currently 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 chief executive officer 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 spin-off, we can significantly enhance value creation for our customers, employees, and shareholders, as we did with our successful spin-off of GXO last year.”
The company expects to complete the planned spin-off in the fourth quarter of 2022, 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 of directors, and final approval by the XPO board of directors, among other requirements. There can be no assurance that the planned spin-off or divestiture transactions will occur or, if one or more do occur, of the terms or timing.
Additionally, XPO reiterated its first-quarter and full-year 2022 guidance issued on February 8, 2022.
Compelling Strategic and Financial Rationale for the Separation
The XPO board of directors believes that each of the two transportation powerhouses created by the planned spin-off and the divestitures would be strongly positioned to unlock significant value:
- Each company will benefit from an undiluted focus on strategic priorities, customer requirements and stakeholder interests, with its own management team and culture, and greater flexibility to tailor strategic decision-making.
- 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.
- Each company will have an investor base aligned with a clear-cut value proposition and be valued separately by the investment community, benefiting each company in executing its growth strategy.
- The aggregate trading price of the stocks of the two standalone 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 significantly 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 spin-off, 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.
XPO’s views regarding the spin-off’s potential impact on aggregate equity value are based, among other things, on a study of the valuation multiples assigned to its publicly traded peers that have specialized business models. XPO believes that the separation of its North American LTL business from its asset-light transportation services will unlock significant equity value in both standalone companies beyond what is currently reflected in the existing conglomerate, for the benefit of all stakeholders.
Less-Than-Truckload Business Profile
Post-spin-off, the remaining company will be the third-largest North American provider of less-than-truckload transportation services, with significant competitive advantages, including its position as one of the few national LTL networks in the United States, 130 commercial truck driver training schools, and a company-owned trailer manufacturing facility in Arkansas. A team of approximately 21,000 employees serves 25,000 accounts, including innumerable long-tenured customer relationships across diverse verticals.
As of year-end 2021, XPO’s North American LTL business segment had an integrated network of 291 terminals, approximately 12,000 professional drivers, and equipment assets of approximately 7,900 tractors and 25,800 trailers.
For the full year 2021, the business generated $4.1 billion of revenue, $618 million of operating income, and $904 million of adjusted EBITDA, as well as the second-best adjusted operating ratio in the LTL industry.
Post-spin-off, the new company will be a best-in-class, tech-enabled truck brokerage platform with a history of outsized revenue and margin growth, including a revenue CAGR three times faster than the industry growth rate from 2013 to 2021. The spin-off will inherit XPO’s first-mover advantage with brokerage automation, giving its customers access to massive truckload capacity through its XPO Connect® digital freight marketplace: 80,000 carriers representing approximately one million trucks. The company’s offering will include complimentary asset-light services for last-mile logistics, managed transportation, and global forwarding.
As of year-end 2021, the proposed spin-off operations included a total of 172 locations and approximately 5,500 employees, with approximately 10,000 customers.
For the full year 2021, the proposed spin-off operations generated a total of $4.8 billion of revenue, $226 million of operating income and $305 million of adjusted EBITDA.
XPO’s European transportation business provides truckload, less-than-truckload, managed transportation, last-mile logistics and global forwarding services, with 207 locations in 14 countries and approximately 13,700 employees as of year-end 2021. The company is the No. 1 truck broker and the No. 1 LTL provider in France and Iberia (Spain and Portugal), and the No. 3 truck broker in the UK, where it also has the largest single-owner LTL network. These four countries accounted for approximately 90% of the $3.1 billion of revenue generated by XPO’s European business for the full year 2021.
XPO’s intermodal operation is a leading provider of drayage and rail brokerage services in North America. As of year-end 2021, the business unit had 44 locations, including 36 drayage terminals, and approximately 425 employees. For the full year 2021, the intermodal business generated $1.2 billion of revenue.
XPO Logistics, Inc. is a leading provider of freight transportation services, primarily truck brokerage and less-than-truckload (LTL). XPO uses its proprietary technology, including the cutting-edge XPO Connect® automated freight marketplace, to move goods efficiently through supply chains. The company’s global network serves 50,000 shippers with 771 locations and approximately 42,000 employees and is headquartered in Greenwich, Connecticut.