FedEx Freight Spinoff to Create Largest LTL Carrier
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FedEx Corp. on Dec. 19 announced its intent to spin off its FedEx Freight unit into a separate company, creating the largest publicly traded less-than-truckload carrier in North America in the process.
The company in a release said the decision was made after its board of directors conducted an assessment of the role FedEx Freight held in its broader portfolio and “decided to pursue a full separation of FedEx Freight through the capital markets, creating a new publicly traded company.”
FedEx said the creation of two companies — FedEx and FedEx Freight — would preserve “operational synergies between both companies” while enabling “greater strategic, operational and financial execution for each company and its stakeholders.”
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FedEx ranks No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in North America, and FedEx Freight is No. 1 on the LTL carriers list. FedEx also ranks No. 2 on the TT Top 50 list of the largest global freight carriers. And FedEx Logistics ranks No. 34 on the TT Top 100 logistics companies list.
“This is the right time to pursue a separation as we respond to the unique dynamics of the LTL market,” FedEx CEO Raj Subramaniam said. “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. Through this process, we will unlock value for our Freight business and position FedEx to create even greater value for stockholders.”
The separation process will commence immediately and is expected to be completed within 18 months, FedEx said, subject to regulatory and other conditions as well as final approval of the board of directors.
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With revenue of $9.4 billion in fiscal 2024, FedEx Freight has increased operating profit by nearly 25% on average per year over the past five years, according to the release, delivering about 1,100 basis points of operating margin expansion over the same period.
“FedEx Freight is expected to benefit from a strong balance sheet that will allow it to maintain and extend its leadership position in the LTL market,” the release said.
FedEx said the planned separation will create two independent publicly listed companies and will qualify as a tax-free separation for federal income tax purposes.
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“The separation will allow for more customized operational execution along with more tailored investment and capital allocation strategies to serve the unique and evolving needs of both the global parcel and LTL markets,” FedEx said. “The [companies] will also maintain the strategic advantages of cooperation on key commercial, operational and technology initiatives.”
Specifically, FedEx said the assessment concluded that separating FedEx Freight into an independent company would create “strategic opportunities” that would enable both companies to deepen their operational focus, accountability and agility, and better enable both companies to “capture profitable growth opportunities and unlock market value.” It also noted that separate public stock listings with distinct stockholder bases will “enhance the value proposition for each company.”
The company said, “The benefits of the existing FedEx and FedEx Freight relationships will be optimized through commercial agreements between the two entities to maintain operational and service-level continuity. Ongoing collaboration will be designed to improve the value propositions of both companies by accelerating speed, improving coverage and driving efficiencies that will lower the cost to serve.”
The spinoff company will continue to operate under the FedEx Freight name.
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“Over the last 50 years, FedEx has built an unmatched global platform that has produced significant value for our stockholders and opportunities for our team members,” said R. Brad Martin, vice chairman of the board and chairman of the Audit and Finance Committee who led the board’s oversight of the strategic analysis. “Building upon that powerful foundation, and following a careful assessment of our portfolio, the FedEx Corp. board is confident that a separation of FedEx Freight will drive continued growth and value creation.”
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