GREENWICH, Conn. — XPO Logistics, which deals in less-than-truckload shipping and truck brokerage, has sold has sold its North American intermodal business to STG Logistics for $710 million, XPO announced on Friday.
The intermodal unit, which involved about 700 employees and provided rail brokerage and drayage at 48 locations, generated about $1.2 billion in revenue in 2021. It is North America’s third-;argest provider of container services, with 11,000 containers, 2,200 truck tractors, and 5,200 chassis.
“This divestiture simplifies our business model and moves our capital structure closer to investment-grade — two priorities in our strategic plan to unlock significantly more value for our stakeholders,” Brad Jacobs, CEO of Greenwich-based XPO, said in a press release. “We’ve completed a key step in preparing for our planned spin-off, when we’ll separate XPO into two publicly traded leaders in less-than-truckload transportation and tech-enabled brokered transportation services.”
STG, based in Bensenville, Ill., describes itself as a leading provider of facilities-based containerized logistics services. Its facilities include 28 port locations totaling more than 5 million square feet.
“I could not be more excited about this game-changing acquisition,” STG CEO Paul Svindland said in a press release. “Once combined, the STG network will be able to handle a container from the instant it’s ready at a port or customer facility to the moment each individual shipment arrives at its final destination, all the while providing customers full visibility and a single source of accountability.”
Sounds like they didn’t grow the business much after purchasing Pacer International in 2014, that’s where most of the intermodal business came from and Pacer was already a Billion dollar revenue company at the time. XPO paid $335 million for Pacer at the time and now has sold the business for a little over double the purchase price. A growth of only $200 million in revenue in 8 years is telling…always thought Pacer would’ve been a better purchase for FedEx Freight or UPS.
They say containers are a razor thin margin business and it appears they are right.
It’s not the revenue generated by the unit, its the amount of capital needed to generate said revenue. If “stakeholders” expect a 4% return on capital, but XPO is only generating 2% return on its investment, then they want changes made.
XPO may be clearing $1.2 billion in revenue, but one must look at how much it cost to acquire that revenue. In this case they talk about “investment grade” returns, so I can only assume XPO was probably not covering their cost of capital with the unit and profits in other businesses were hiding the losses.
So XPO sold the the assets at something around book value.
Two priorities in our strategic plan to unlock significantly more value for our stakeholders. The intermodal unit generated about $1.2 billion in revenue in 2021. Does this mean the hedge funds don’t like only $1.2 billion and want more out of them? If it main $1.2 billion why do they sell it for only $710 million?