XPO looks to spin off logistics segment
GREENWICH, Conn. – Global supply chain services provider XPO Logistics has announced plans to spin off its logistics segment as a separate publicly traded company.
The remaining entity, which XPO calls “XPORemainCo” for now, would focus on freight transportation, primarily less-than-truckload and non-asset truck brokerage, two services currently accounting for approximately 90% of adjusted earnings before interest, taxes, depreciation and amortization. It would be the third-largest provider of LTL transportation in North America, and the second largest truck brokerage provider worldwide, with a digital brokerage marketplace with a leading carrier adoption rate.
The logistics spin-off, “NewCo,” would be the second largest contract logistics company in the world, with approximately 200 million square feet of warehouse space. The entity’s services technology driven services would include high-value-add warehousing, omnichannel fulfillment, reverse logistics, cold-chain logistics and supply chain optimization; the largest outsourced e-commerce fulfillment platform in Europe, with burgeoning e-commerce and reverse logistics services in North America; and XPO Direct, a shared-space distribution network in North America with the flexibility to reposition customer inventories close to demand.
If the spinoff is completed as expected in the second half of next year, Bradley Jacobs will continue to serve as chairman and CEO of XPORemainCo, and will become chairman of the NewCo logistics company board; Troy Cooper will continue to serve as XPORemainCo’s president; and the executives currently leading XPO’s global logistics segment will continue to serve in senior positions with NewCo.
XPO intends to structure the spinoff as a transaction that is tax-free to XPO shareholders and would result in XPO shareholders owning stock in both companies.
The newly announced plan emerged from a strategic review of options XPO initiated this year, and comes after extensive analysis of potential strategies and feedback from investors. According to XPO, this spinoff is effectively a clear-cut separation of the two reporting segments – both industry leaders in their own right – the company has had all along, and an opportunity to create tremendous value now and in the future.
One of the most compelling reasons for the spinoff is that XPO’s operating segments have different business drivers, capex requirements and operating models. Transportation is highly transactional, with over 50,000 customers, while logistics is a contractual model, with fewer customers, but a higher revenue per customer, and long-term contracts.
In addition, as separate companies, XPORemainCo and NewCo would be analyzed relative to the right peers – the other industry leaders in LTL, truck brokerage, and contract logistics.
“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,” said Jacobs 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 transaction is 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.
Click here for the full XPO announcement.