XPO Logistics Announces Plan to Spin Off Logistics Segment to Its Shareholders

XPO Logistics Pursuing a Spin-Off of 100% of its Logistics Segment

XPO Logistics, Inc. (NYSE: XPO) (”XPO”) has announced that its board of directors has unanimously approved a plan to pursue a spin-off of 100% of its logistics segment as a separate publicly-traded company.

XPO intends to structure the spin-off as a transaction that is tax-free to XPO shareholders and would result in XPO shareholders owning stock in both companies.

After a thorough examination of all strategic alternatives, the XPO board currently believes that the optimal path to unlock aggregate equity value is to create two independent companies that are each well-equipped to capitalize on secular growth trends in their sectors.

If completed, the spin-off will result in separate businesses with clearly delineated service offerings: XPORemainCo, a global provider of less-than-truckload (LTL) and truck brokerage transportation services; and NewCo, the second-largest contract logistics provider in the world. Both companies are expected to trade on the New York Stock Exchange.

Brad Jacobs, chairman, and chief executive officer of XPO Logistics, said;

“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. 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.”

If the spin-off is completed as expected: Jacobs will continue to serve as chairman and chief executive officer of XPORemainCo, and will become chairman of the NewCo 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.

The transaction is currently expected to be completed in the second half of 2021, 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. There can be no assurance that a separation transaction will occur or, if one does occur, of its terms or timing.

Compelling Strategic Rationale for Separation

The XPO board of directors believes that the creation of two pure-play businesses with distinct service offerings will provide significant benefits to both companies and their stakeholders and that a lower debt profile with enhanced earnings potential will make it easier to achieve each company’s target of an investment-grade credit rating. Importantly:

• XPORemainCo and NewCo would both benefit from an undiluted focus on their specific strategic priorities and customer requirements.
• Each business would be able to deepen its differentiation by having its technology team focus on enhancing the proprietary software developed for its specific service offering - notably, the XPO Connect™ digital transportation platform and XPO Smart™ productivity tools for logistics and LTL operations.
• Each standalone company would have an investor base aligned with a clear-cut value proposition and be valued separately by the investment community, potentially resulting in an increase in equity value that would benefit each of the businesses in executing its strategy.
• Each business would be able to attract and retain world-class talent by offering meaningful equity-based compensation that correlates closely to performance.
• Separate public stock listings would enhance each company’s ability to pursue accretive M&A opportunities, with the benefit of an independent equity currency at a potentially higher value.
• XPO’s views regarding the spin-off’s potential impact on aggregate equity value are based, among other things, on a study of the valuation multiples assigned to its publicly traded peers that have more specialized business models. The company believes that, by simplifying the business model and strengthening the focus of each resulting company, a spin-off is an optimal way to unlock significant equity value not currently reflected in the existing conglomerate and thereby benefit both businesses and their stakeholders.

XPORemainCo Profile

Post-separation, XPORemainCo will be a top provider of freight transportation, primarily LTL and non-asset truck brokerage - these two services currently account for approximately 90% of adjusted EBITDA. The business will comprise:

• The third-largest provider of LTL transportation in North America, with an industry-best improvement in the adjusted operating ratio over the five years of XPO ownership; and
• The second-largest truck brokerage provider worldwide, with a digital brokerage marketplace that has the fastest carrier adoption rate in the industry.

As of September 30, 2020, XPO had transportation operations in 17 countries, with approximately 38,000 employees and 724 locations.

NewCo Profile

Post-separation, NewCo will be the second-largest contract logistics company in the world, with approximately 200 million square feet of warehouse space. The business will comprise:

• A range of innovative services enabled by intelligent technology, including 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.

As of September 30, 2020, XPO had asset-light logistics operations in 27 countries, with approximately 58,000 employees and 766 locations.

Investor Presentation

A presentation that summarizes the intended spin-off transaction will be available on the investor relations area of the company’s website, xpo.com/investors, from Wednesday, December 2, 2020, at 4:30 p.m. ET until January 1, 2021.

Comments from Logistics Management Magazine

When Jeff Berman, Group News Editor for Logistics Management, asked Ben Gordon, Managing Partner of Cambridge Capital, an investor in niche supply chain leaders and also Managing Partner of BGSA Holdings, a leading mergers, and acquisitions advisory firm focused on the transportation, logistics, and supply chain technology sectors, he said that for nearly a decade Brad Jacobs has focused on maximizing shareholder value at XPO.

“He believes the business is undervalued today, and he has a point,” noted Gordon.

“LTL carriers like Old Dominion trade at 17x EBITDA. At the same time, logistics companies like CH Robinson trade at 18x EBITDA. Meanwhile, XPO is trading at 8x EBITDA. Brad’s thesis is that if he separates the businesses into a NewCo (focused on contract logistics) and a RemainCo (focused on LTL, brokerage, and last-mile), he will get credit from the markets as a pure-play. The fact that Brad intends to be Chairman of both companies will be reassuring for investors. And the fact that Brad will remain CEO of RemainCo reflects his enthusiasm for that business. It will be interesting to see who becomes the CEO of the contract logistics business.”

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