XPO Logistics, Inc. (NYSE: XPO), a leading global provider of transportation and logistics solutions, today announced that its board of directors has approved a plan to spin off its logistics business into two independent, publicly traded companies. This transformative move aims to optimize operations, enhance strategic focus, and ultimately create superior long-term value for shareholders.
The planned separation is expected to be completed in the second half of 2021, subject to customary conditions including final board approval, receipt of necessary regulatory approvals, completion of tax opinions and registration statements. While there can be no assurance that the separation will be completed or regarding its timing or terms, XPO expressed confidence in its strategic and financial benefits.
Strategic Rationale: Unlocking Intrinsic Value and Driving Operational Excellence
Following a comprehensive review and strategic assessment by XPO's board and management team, the company concluded that a separation is the optimal path to unlock intrinsic value and drive long-term growth. By separating the transportation and logistics businesses into distinct entities, XPO aims to create two more focused, agile companies with more efficient capital allocation.
"We believe that by separating our transportation and logistics businesses, we can create two high-performing pure-play companies that best serve the interests of all stakeholders," said Brad Jacobs, chairman and chief executive officer of XPO. "The separation will allow both companies to sharpen their focus on their respective markets, make more targeted strategic decisions, and allocate capital more efficiently. We're excited about the tremendous value this separation will bring to our customers, employees and shareholders."
The Post-Separation Landscape: Two Strong Independent Companies
If completed, the logistics industry will gain two strong independent companies, each focused on its core strengths and growth opportunities:
XPORemainCo (Provisional Name)
This company will become a leading North American less-than-truckload (LTL) provider with a strong truck brokerage business. XPORemainCo will focus on delivering superior transportation services, leveraging its extensive network, technology and operational expertise to meet customers' evolving needs. The LTL and truck brokerage businesses represent XPORemainCo's core profit centers, contributing approximately 90% of EBITDA.
NewCo (Provisional Name)
This company will become the world's second-largest contract logistics provider with approximately 200 million square feet of warehouse space. NewCo will focus on delivering comprehensive supply chain solutions including warehousing, distribution, reverse logistics and value-added services. The company will leverage its global footprint, advanced technology and industry expertise to help customers optimize their supply chains, improve efficiency and reduce costs.
Management Teams: Experienced Leadership for Smooth Transition
To ensure business continuity and effective execution of strategy, XPO's management team will remain stable post-separation. Brad Jacobs will continue as chairman and CEO of XPORemainCo while serving as chairman of NewCo. Troy Cooper will remain president of XPORemainCo. The existing executive team of XPO's global logistics segment will continue in senior roles at NewCo. Specific leadership appointments will be announced in coming months.
Customer Benefits: Focused Service and Technology-Driven Innovation
XPO is committed to providing customers with a seamless transition and continued excellence in service throughout the separation process. The management teams of XPORemainCo and NewCo will be able to focus more intently on their respective companies' strategic priorities and business opportunities, enabling more tailored services and solutions.
Additionally, both companies will maintain strong technology teams dedicated to continuously enhancing their innovative service capabilities. Since its formation in 2011, technological innovation has been a long-term priority for XPO Logistics. The company has invested significant capital in developing and deploying advanced technology to improve efficiency, increase visibility and enhance customer experience. These investments will continue to drive innovation at both companies post-separation.
Business Focus: Sharpening Core Competencies
Post-separation, XPORemainCo will concentrate on its LTL and truck brokerage businesses. The LTL operation will continue providing reliable, efficient transportation services for customers of all sizes. The truck brokerage business will leverage its proprietary technology platform and extensive carrier network to offer customers flexible, cost-effective transportation solutions.
NewCo will focus on contract logistics, providing customers with comprehensive supply chain solutions including warehousing, distribution, reverse logistics and value-added services. The company will leverage its global footprint, advanced technology and industry expertise to help customers optimize their supply chains.
This sharpened focus will help both companies enhance their core competencies, better serve customer needs and capitalize on new growth opportunities.
Workforce Considerations
As of [Current Date], XPORemainCo has approximately 38,000 employees and 724 locations. NewCo has about 58,000 employees and 766 locations across 27 countries. XPO is committed to supporting its employees throughout the separation process and ensuring a smooth transition.
Workforce size at both companies will be adjusted flexibly according to market demands. NewCo's employee base may be affected by e-commerce developments, given the company's significant presence in this sector. XPO anticipates that e-commerce will continue driving demand for contract logistics services, positioning NewCo to capitalize on this growth.
Industry Trends: Opportunities and Challenges
XPO identifies two major opportunities in the contract logistics market:
- Growing demand for contract logistics expertise among large customers: More clients recognize the complexity and importance of supply chains, requiring specialized partners to help manage them. The pandemic has particularly exposed supply chain vulnerabilities, making visibility and resilience higher priorities for customers.
- Increasing need for supply chain automation: Against a backdrop of macroeconomic uncertainty, customers seek automation to improve efficiency, reduce costs and address challenges like labor shortages.
Technology Advantages
Under the plan, NewCo will receive a "perpetual license" to all software and technology developed by XPO specifically for its logistics business. These technologies include warehouse management systems (WMS), transportation management systems (TMS) and other advanced supply chain management tools.
This will help NewCo maintain its technology leadership position and provide superior service to customers. The company will continue investing in technological innovation to develop new solutions for evolving customer needs.
Transition Period
With the separation expected to complete in second-half 2021, an XPO spokesperson stated that business will continue as usual during this period. The company remains committed to providing customers with uninterrupted service excellence throughout the transition.
Such moves typically require six to nine months to complete, with regulatory approvals being the most time-consuming component. XPO will work closely with regulators to ensure timely completion.
Expert Perspectives
Ben Gordon, managing partner of Cambridge Capital, noted that Brad Jacobs has consistently worked to maximize shareholder value at XPO. He believes XPO is currently undervalued, with an EBITDA multiple of just 8 compared to 17 for LTL specialist Old Dominion and 18 for logistics company CH Robinson. Gordon suggested that separating XPO's business into NewCo (focused on contract logistics) and RemainCo (focused on LTL, brokerage and last-mile) would command higher valuations from the market.
Evan Armstrong, president of Armstrong & Associates, called XPO's move strategically sound but noted one significant drawback. He suggested that spinning off just the LTL business might make more sense due to synergies between freight brokerage and other third-party logistics services. However, he acknowledged this as a positive step in the right direction, noting that LTL and third-party logistics have minimal synergies in the U.S. market.
Conclusion: Strategic Transformation with Promising Future
XPO's planned separation of its logistics business marks a significant step in its strategic transformation. By creating two high-performing pure-play companies, XPO aims to better serve customers, employees and shareholders. The separation is expected to complete in second-half 2021, pending various conditions. The industry will be watching closely to see how this strategic move reshapes the logistics landscape.