FedEx will spin off its LTL trucking unit, FedEx Freight, into a separate, publicly traded company within the next 18 months, the parcel giant announced Thursday.
The separation will allow for more customized operational execution along with more tailored investment and capital allocation, FedEx said, underscoring the differences between LTL and parcel shipping. Rival UPS sold its own LTL unit, UPS Freight, to TFI International in 2021.
“This is the right time to pursue a separation as we respond to the unique dynamics of the LTL market,” said Raj Subramaniam, FedEx president and CEO, in the announcement.
It’s not a total surprise: FedEx has been streamlining its operations and had hinted to investors in June a spinoff was possible. A board review of the unit’s role in its portfolio recommended the move, which FedEx promised to execute in a tax-efficient manner for stockholders.
FedEx Freight boasts the largest real-estate network of any U.S. LTL carrier, with about 400 service centers, according to its website. The business has around 40,000 employees and 30,000 vehicles.
“This announcement is a testament to the strength of the business our team has built, and to our dedication to doing what’s best for our customers, our team members, and our stockholders,” Subramaniam said.
The two companies will maintain cooperation on key commercial, operational and technology initiatives, FedEx said.
But the spinoff aims to create value for shareholders by running the LTL carrier as pure-play operation, a strategy competitor XPO followed in recent years with its spinoffs of its warehousing and other non-LTL properties.
The goal is to avoid the “conglomerate discount,” a Wall Street concept that has driven corporate spinoffs across industries, as company leaders say their investors prefer more specific companies to big corporations.
In FedEx’s case, a spinoff would allow shareholders to be more selective about which of its distinct businesses they invest in.
“Through this process, we will unlock value for our Freight business and position FedEx to create even greater value for stockholders,” Subramaniam said.
