Third party logistics conglomerate XPO Logistics is heading back into the operating room, announcing yesterday that it will go under the knife again—just seven months after spinning off its contract warehousing arm—and divide its various combined operations into standalone specialty service providers.
Since its founding in 2011, Greenwich, Connecticut-based XPO has spent freely and grown fast through blockbuster acquisitions of contract logistics providers such as Menlo Worldwide, Con-way Inc., and Norbert Dentressangle. As recently as January of 2020, the company said it was looking to unload some of those business units, but put that plan on hold as the covid pandemic roiled global markets. Then in 2021, XPO spun off its warehousing business, and the newly named GXO has since traded as an independent company with its own stock.
Now, as the latest covid surge is receding and public health conditions are returning to normal in most regions, XPO is returning to its original plan to trim down through surgical procedures. The reason is that its business units will have higher stock valuations operating alone than they do together, based on a study of XPO’s “publicly traded peers that have specialized business models,” the company said.
To reach that goal, XPO will separate its tech-enabled brokered transportation services from its less-than-truckload (LTL) business in North America; and then sell off its European business and North American intermodal operation. Subject to various conditions, the entire plan could be completed by the fourth quarter.
According to XPO, the new spinoff will be a platform for tech-enabled truck brokerage services in North America, with a digital freight marketplace and access to vast truckload capacity, with asset-light offerings for last mile logistics, managed transportation, and global forwarding. The corporate headquarters are expected to be in Charlotte, North Carolina.
The remaining company will be a “pure-play” North American LTL operation that will be the third largest provider of domestic and cross-border LTL freight shipping, headquartered in Greenwich, Connecticut.
And separate from those two entities, XPO plans to divest its European business through either a sale or a listing on a European stock exchange, and to sell off its North American intermodal business, which provides rail brokerage and drayage services.
“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,” Brad Jacobs, chairman and CEO of XPO Logistics, said in a release. “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.”
Industry analysts agreed, with an investors note from Bascome Majors, a stock analyst with Susquehanna International Group LLP (SIG), explaining: “XPO's latest push to simplify its business and shed a persistent conglomerate discount would leave a pure-play listed N.A. LTL and relatively pure-play listed N.A. truck brokerage, following 2021's spin-off of contract logistics into GXO, and the original early 2020 plan to sell off every business but N.A. LTL which was derailed by COVID's global shock.”
Following that move, stock market investors would assign each of the individual units a higher corporate value in relation to their earnings than they currently have, and the sale of the outstanding divisions would generate funds allowing XPO to pay down its debt and gain better credit on its accounting books, the SIG report said.
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