Transportation and logistics powerhouse XPO Logistics Inc. is splitting itself into two separate companies, announcing today that it will spin off its contract logistics and warehousing segment from its freight brokerage and trucking arm.
Expected to be completed in the second half of 2021, that spin-off will create one company called XPORemainCo, a global provider of less-than-truckload (LTL) and truck brokerage transportation services, alongside a second firm called NewCo, which would become the second-largest contract logistics provider in the world after DHL Supply Chain.
Under the plan, XPORemainCo will be led by XPO’s current chairman and CEO, Brad Jacobs, who would continue to hold both of those titles, and XPO’s president, Troy Cooper, who will also retain his title. Meanwhile, Jacobs would also sit as chairman of the NewCo board, while that company is steered by the executives currently leading XPO’s global logistics segment.
Current XPO shareholders will soon own stock in both companies, which are expected to trade independetly on the New York Stock Exchange (NYSE), Greenwich, Connecticut-based XPO said.
“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,” Jacobs said in a release. “Both businesses will have greater flexibility to tailor strategic decision-making and capital allocations to their end-markets, with the benefit of strong positioning as customer-focused innovators. We currently believe that this spin-off is the most effective way to unlock significant value for our customers, employees and shareholders.”
The proposed move is subject to a range of 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, the company said.
Split follows existing revenue streams
While the whimsical names of the two new entities are placeholders subject to future change, their industry focus areas follow the same revenue streams that have existed on the company’s accounting books for years, an XPO spokesperson said.
The distinction between the two new firms falls along three lines, including finance, technology, and customer base. For example, 90% of XPORemainCo’s earnings before interest, taxes, depreciation, and amortization (EBITDA) comes from the LTL and truck brokerage operations, while NewCo will draw the vast majority of its earnings from the fulfillment and inventory work performed within the company’s existing network of 766 locations in 27 countries.
A similar pattern holds for XPO’s existing technology products, as the firm will assign its digital freight matching (DFM) platform called XPO Connect to XPORemainCo, while its shared-space inventory distribution platform called XPO Direct becomes part of NewCo, the spokesperson said.
Likewise, the two corporate units already serve distinctly different customer profiles, with XPORemainCo providing its transportation services to more than 50,000 clients in a series of short-term transactional moves, while NewCo works with a far smaller number of users in long-term contractual arrangements of warehouse storage.
XPO argues that those two divisions have really been operating on different planes all along, although some common economic trends bode well for both, such as the pandemic-driven boom in e-commerce and peak holiday volumes, and rising demand for supply chain automation to serve increasingly complex online orders with shrinking lead times for fulfillment.
Pushed by those “secular tailwinds,” both of the new divisions will be positioned for success by meeting the needs of retailers who are increasingly looking to hand off their transportation and warehousing operations to third-party specialists, the spokesperson said. That dovetails with remarks made by Jacobs at an industry conference in September, when he cited e-commerce as a lever that was pushing XPO's customers to outsource their supply chains.
According to XPO, those variables will combine to improve both companies’ performance in the market. “The XPO board of directors believes that the creation of two pure-play businesses with distinct service offerings will provide significant benefits to both companies and their stakeholders, and that a lower debt profile with enhanced earnings potential will make it easier to achieve each company’s target of an investment-grade credit rating,” the company said in a release.
And finally, the move could allow both units to improve their ability to compete for fresh acquisitions, which has long been a trademark of XPO’s strategy to build market share through takeovers. Originally founded through buyouts of large transportation players like Con-Way Inc. and Norbert Dentressangle S.A., XPO had pulled back from that approach during the stormy financial events of recent years, but its latest maneuver could signal a return to its old ways. “Separate public stock listings would enhance each company’s ability to pursue accretive M&A opportunities, with the benefit of an independent equity currency at a potentially higher value,” XPO said in its release.
Editor's note: This article was revised on December 2 to add comments from an XPO spokesperson.
XPO Logistics announces plan to spin off logistics segment to its shareholders. https://t.co/O9GDxuhpZ9— XPO Logistics, Inc. (@XPOLogistics) December 3, 2020