XPO Logistics splits operations in two

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Freight transportation company XPO Logistics intends to separate its tech-enabled brokered transportation services from its less-than-truckload (LTL) business in North America while also divesting 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. The tech-enabled truck brokerage services platform in North America would have a digital freight marketplace and a large 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.

At the end of 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 company generated a total of US$4.8bn of revenue, US$226m of operating income and US$305m of adjusted EBITDA.

Upon completion of the spin-off, XPO’s North American LTL segment would be a pure-play LTL business with a network of transportation assets managed by proprietary technology. The standalone business would focus on improving the growth and profitability of its national network. The corporate headquarters are expected to be in Greenwich, Connecticut.

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 US$4.1bn of revenue, US$618m of operating income and US$904m of adjusted EBITDA, as well as the second-best adjusted operating ratio in the LTL industry.

The company also plans to divest its European business through either a sale or a listing on a European stock exchange to simplify its transportation service offering. 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.

The company expects to complete the planned spin-off by the end of 2022, subject to 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.

Brad Jacobs, chairman and CEO 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 rationale for the separation was that each company would benefit from a focus on its own priorities, customer requirements and stakeholder interests, with its own management team and greater flexibility in decision making and allocation of capital.

Additionally, 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, enabling each company to use its stock to pursue acquisitions and to increase the long-term attractiveness of its equity compensation programs, with less dilution to existing stockholders.

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