XPO Logistics Inc. said late Tuesday that it will spin off its North American truck brokerage and related businesses and will divest its European operations, moves that will transform the company into a pure-play LTL provider on the continent.
XPO (NYSE: XPO) also disclosed that it is in advanced talks with an unidentified suitor to sell its North American intermodal and drayage operations, which generated about $1.2 billion in revenue last year and which operates 44 locations in North America. A sale of the intermodal business, should it happen, is expected to be consummated within the next three to four weeks, according to people close to the situation. Should the deal fall through, the business will be included as part of the spinoff, which is slated to occur during the fourth quarter of 2022.
XPO said its last-mile, managed transportation and freight forwarding businesses will be included in the spinoff. The combined segments generated $4.8 billion in revenue during 2021.
The company is exploring the sale or public listing of its European business, which generated about $3.1 billion in revenue during 2021. Most of XPO’s European business came from the transportation arm of the former Norbert Dentressangle S.A., the French transport and logistics company that XPO acquired in 2021 for $3.5 billion. Dentressangle’s European logistics business eventually became GXO Logistics Inc. (NYSE: GXO), which XPO spun off last August.
Should the multiple transactions go according to plan, XPO will have simplified its business to the point of being a stand-alone LTL carrier. Brad Jacobs, XPO’s chairman and CEO, has for years sought to elevate XPO’s valuation status to the levels enjoyed by Old Dominion Freight Line Inc. (NASDAQ: ODFL) and Saia Inc. (NASDAQ: SAIA), both of which are essentially pure-play providers and have performed better than XPO. For example, XPO’s LTL operating ratio, the ratio of expenses to revenue, was expected to hit 86.3% in the first quarter, an improvement over the prior quarter. Old Dominion, by contrast, sported a 73.4% fourth-quarter operating ratio, levels unheard of from an LTL carrier.
Prior to the GXO spinoff, Jacobs argued that XPO had long been penalized with a “conglomerate’s discount” because analysts and investors had difficulty valuing its many moving parts. Following the GXO spinoff, attention turned to the possibility of XPO selling or spinning off its non-LTL assets to further simplify its value proposition to Wall Street.
The aggregate trading price of the two businesses should exceed the price that XPO shares would trade at if the operations stayed combined, the company said. XPO shares jumped nearly 9% in after-hours trading after rising 2.7% in the regular trading session. Shares which traded at about $90 around the time of the GXO spinoff have fallen to around $60 a share in recent weeks.
The brokerage business has been a solid performer in recent quarters, leveraging favorable macro conditions and robust technology to achieve high levels of profitability. The segment posted a 36% fourth-quarter year-over-year gain in gross revenue to $846 million. Net revenue, defined as gross revenue minus the cost of transportation and services, rose 10% to $128 million. Brokerage generated $4.8 billion in 2021 revenue, $700 million more than the LTL segment.
The LTL business generated $618 million in operating income and $904 million of adjusted earnings before interest, taxes, depreciation and amortization. XPO expects the LTL operation to hit $1 billion of adjusted EBITDA this year. In Tuesday’s announcement, XPO affirmed its first-quarter and full-year guidance issued a month ago.
The spinoff company will be based in Charlotte, North Carolina, where XPO already has a sizable footprint.
