Name: XPO Logistics CEO explains why splitting up the trucking company makes sense
Uploaded: 2020-03-17
Duration: 6 min 37 s
Description: Coronavirus could upend those plans.

XPO Logistics CEO explains why splitting up the trucking company makes sense

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XPO Logistics CEO: splitting up trucking company makes sense

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Brad. Everyone is wondering, What's your next move? People were very surprised when they heard that you were thinking about splitting up your company, Expo logistics. And in fact, a couple of years ago, when we were talking, you were very upbeat about the future of a company that you have built into one of the largest freight and logistics transportation companies in the world. What changed? I'm still very upbeat. I'm very positive about the company that we've built with strong leadership positions in Europe and North America and some of the fastest growing parts of transportation and logistics. It's all powered by technology, most of which is proprietary. So I'm very optimistic about the future of the company, and customers are very appreciative of what the service is that we're providing for them now. You mentioned that we're considering strategic alternatives in terms of what's changed. We are considering that the reason we're considering that is because the valuation that we're getting in the public markets is not so great, okay? And we won't be great. And so we're thinking for some of our business units may be in a sale transaction, we could get higher multiple well you said to your employees that you have mixed feelings about this. In fact, to quote you, you said We have to do what's right for the shareholders. Is the board asking you to do this? Is there Ah, shareholder group that's pressuring you? No, I'm very collaborative relationship with our board. It's It's a great dynamic, and we agreed as a board that let's pursue whatever makes the most amount of sense toe fulfill our prime mission, which is to create shareholder value. And so I do have mixed feelings because I'm in love with our employees and I'm in love with our customers and I. We've created a great one Expo family atmosphere around the globe, and if we end up selling, some of our business units will shrink instead of expand. Its better to expand. But the most important thing is to expand our share price for our shareholders. We have to do the right thing for them. We're not on a on an irreversible path of we must sell these for business. You know, if if it makes sense in terms of creating shareholder value to sell, then we will sell. So let's talk a little bit about the business units. You've made it very clear that there is one that you really want to hold on to its your small freight trucking unit, which you call North American LPL, which stands for less than truckload. What's so special about that particular business? Right? The trucking market is hundreds of billions of dollars in size. The bigger one is the full truckload market, where if you look inside one of those big trucks on the highway, you'll find usually one customers freight filling up the whole truck in less than truckload. Er lt l it's palates from dozens of different customers that we consolidate and put into a truck and that business is a smaller business. It's tens of billions of dollars still substantial, with 1/3 largest lt L player, and we have enormous opportunities to improve the efficiency and productivity and profitability of that business, all powered by technology in the pickup and delivery in the cross dock facility in the line hall and in the pricing Thes Opportunities toe have quantum improvements in the efficiency of the organization. So let's say you do sell the other how units of Expo, what do you do with the money, you're gonna put it into this. L feel division, not all because it's, you know, the substantial billions of dollars. But we have options options. We can return cash to shareholders. We can do dividend to share buyback. We can pay down debt we can do everyday. If market is that logical thing to do, we can invest more in Catholics, and technology will allocate capital in the way that's most efficient. That's most productive for she hopes, as management and as a board. That's probably our highest obligation is to allocate capital intelligently. So whatever allocation of capital makes the most amount of sense, given the circumstances at that time that we'll do, are you still looking at logistics, A CZ a really good business to be in or you're looking to expand outside. We're in the transportation and logistics field, and since 2011 when we started the company or goals always has always been, how do we create most amount of shareholder value within transportation and logistics? Now we've taken the tack that we should invest in technology in order to differentiate our way of doing business from our competition. We spend over half a $1,000,000,000 a year on technology. And we have so many projects to take advantage of advances in artificial intelligence and machine learning and pricing algorithms and optimizing the way our trucks move and automating things in the warehouse. Very exciting. We could spend much more, much, much higher amounts of money in technology, but way live within our means and on Lee spent about half a $1,000,000,000 a year in technology but bread here in the short term, we see that the financial markets are selling off. Many economists are saying that this Corona virus could push the United States into a recession. Are you slowing down your plans for that? Are you just gonna wait and see until this all passes? And it's business as usual right now? Um, no, not at all. We're going full speed ahead with that sales process, and we have four different business units that are in the market, and we've got great buyer demand from them. We're continuing that process regardless of what's going on in the Corona virus in support of those businesses. Still great businesses in this, A lot of interest in them now how it results in end will depend a little bit on the debt markets, then M in a market in the Corona virus and oil in the stock market. So it may put the kibosh on them or it may result in really nice prices for them, depending on where the world is a couple months from now. I don't know yet. Every CEO always has a Plan B and Plan C, then a plan D if they're good. So what are your backup plan for ex Pio? Given all the uncertainty that we're facing right now, So Plan A is we'll continue on the path of pursuing strategic alternatives for those four business units two in Europe to North America. And those were great Those results in great outcomes in terms of great prices, the board will very seriously consider those. They'll be fine if because of the Corona virus or because of the debt markets of them in a more Kadir capital, markets are seizing up. We don't have a productive outcome. That's okay. We don't have to sell those. We don't need to sell those. We launch those process thinking it's a great idea. Maybe we could get some great value to take advantage of the arbitrage between what we trade at and what those things with sell at a sales context. But if it doesn't result in a successful can, we just won't tell. Okay, we have The company will continue in the same form we've been doing great at for 10 years.