XPO Logistics Inc. sold its truckload shipping business to TransForce Inc. for $558 million and plans to use the proceeds to pay down cash built up from its own $3 billion acquisition of Con-way Inc. last year.
TransForce is a Canadian carrier based in Montreal that is looking to build its business in the U.S. and Mexico.
XPO sold the business, which it acquired in the Con-way purchase, so that it could concentrate on other trucking lines of business where it has a better market position, including contract logistics, truck brokerage, less-than-truckload shipping, intermodal transport and port-oriented drayage trucking, said Bradley Jacobs, XPO’s chief executive.
“This transaction strengthens our balance sheet and improves our long-term growth profile. In addition to deleveraging, the sale reduces our annual capex requirements, increases our return on capital, and lessens the cyclicality of our operations,” Jacobs said.
The divested business has 3,000 tractors, 7,500 trailers and 29 office locations. XPO will continue to offer full truckload services to customers in the United States, Mexico and Canada through its brokerage network. XPO is the second largest freight brokerage provider globally.
Greenwich, Conn.-based XPO has built up $5.1 billion of debt from making more than a dozen acquisitions over the past five years.
The deal frees the company to more readily approach other mergers and acquisitions, John Larkin, an analyst at Stifel Transportation & Logistics Research Group, said in a report to investors.
Despite the sluggish trucking climate in the U.S., Larkin has a buy recommendation on XPO. He has a 12-month share price target of $50 for company. XPO shares were trading at $34.66 in morning trading Friday, up 1.6 percent from Thursday’s closing price.
“We expect the company to have some modest short term headwinds, similar to what we are calling for across the entire industry; however, we expect XPO to outperform on an operational improvement level,” he said.
TransForce said the acquired trucking business will generate about $530 million in annual revenue. The acquisition grows its trucking business to nearly $850 million in annual revenue.
“This acquisition significantly strengthens TransForce’s presence in the North American truckload landscape with prominent market positions in domestic US and cross-border Mexico freight,” said Alain Bédard, chief executive of TransForce.
“We have acquired a high quality truckload business with a rich heritage and demonstrated solid operating and financial performance,” he said. “We believe we are investing into the truckload space at a critical time and are well-positioned to benefit from future growth opportunities.”