XPO Logistics Inc. said: Late Tuesday it said it would spin off its North American truck brokerage and related businesses and divest its European operations, moves that would turn the company into a pure-play LTL provider on the continent.
XPO (NYSE:XPO) also revealed that it is in advanced talks with an unidentified suitor to sell its North American transportation and intermodal operations, which generated about $1.2 billion in revenue last year and which operates 44 locations in North America. The intermodal business, if that happens, is expected to be sold within the next three to four weeks, according to people close to the situation. If the deal falls through, the work will be included as part of the bid, which is scheduled to occur during the fourth quarter of 2022.
Its last-mile managed transportation and freight business will be included in the spinoff, XPO said. The combined segments generated revenues of $4.8 billion during 2021.
The company is exploring selling or listing its European business, which generated revenues of about $3.1 billion during 2021. Most of XPO’s European business came from the transportation arm of the former Norbert Dentressangle SA, the French transportation 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 was spun off from XPO last August.
If the multiple transactions go according to plan, XPO will streamline its business to the point of being a stand-alone LTL carrier. Brad Jacobs, XPO’s chairman and CEO, has sought for years to raise XPO’s valuation profile 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 performed better than XPO. For example, XPO’s LTL operating ratio, the ratio of expenses to revenues, was expected to reach 86.3% in the first quarter, an improvement over the previous quarter. By contrast, Old Dominion had an operating ratio of 73.4% in the fourth quarter, levels that were unheard of for an LTL carrier.
Before the GXO offering, Jacobs said XPO had long been punished with a “conglomerate discount” because analysts and investors had difficulty evaluating its many moving parts. Following the GXO offering, attention turned to the possibility of XPO selling or separating its non-LTL assets to further simplify its value proposition to Wall Street.
The company said the combined trading price of the two companies should exceed the price at which XPO shares would trade if combined operations remained. XPO shares jumped nearly 9% in after-hours trading after rising 2.7% in the regular trading session. Shares that were trading at about $90 at the time of GXO’s offering have fallen to about $60 per share in recent weeks.
The brokerage business has performed strongly in recent quarters, leveraging favorable macro conditions and strong technology to achieve high levels of profitability. This segment had a 36% increase in Q4 year-over-year in total revenue to $846 million. Net revenue, defined as total revenue minus transportation and service costs, rose 10% to $128 million. The brokerage generated $4.8 billion in revenue in 2021, $700 million more than the LTL sector.
The LTL business generated $618 million in operating income and $904 million in adjusted EBITDA. XPO expects the LTL operation to reach $1 billion in adjusted EBITDA this year. In Tuesday’s announcement, XPO reiterated its first-quarter and full-year guidance issued a month ago.
The spin-off will be based in Charlotte, North Carolina, where XPO already has a large footprint.
