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FedEx has said it will spin off its freight division, as the parcel shipping group responds to investor calls to simplify its sprawling logistics network.
The plans to break off the division into a separate publicly traded company sent FedEx shares rising as much as 10 per cent in after-hours trading on Thursday, bringing the US group’s market capitalisation to more than $70bn. Analysts estimate the freight division could be worth as much as $33bn.
Big companies have recently been exploring break-ups as investors flock to businesses with more streamlined operations. US industrial conglomerate Honeywell earlier this month said it would spin off its aerospace division after activist hedge fund Elliott Management took a $5bn stake in the business and called for it to split in half.
Investors have pushed FedEx to overhaul its business as it and competitors such as UPS suffered from a post-pandemic slowdown in parcel shipping. FedEx in 2022 added two directors in an agreement with hedge fund DE Shaw, after it led an activist campaign at the company.
FedEx shares had risen 9.1 per cent over the past year, as of Thursday’s close, underperforming a 23 per cent rise in the S&P 500 stock index.
FedEx chief executive Raj Subramaniam, who succeeded company founder Fred Smith two years ago, has sought to overhaul the company.
The group earlier this year consolidated its service lines into two major segments, FedEx Freight, and the division that handles delivery of letters and parcels.
FedEx Freight is the largest carrier in the less-than-truckload freight industry, which handles larger package sizes for a variety of commercial shippers. The division accounted for $9.4bn of the FedEx’s $88bn in revenue in its latest fiscal year, and about a third of its operating profit of $5.6bn.
“This is the right time to pursue a separation as we respond to the unique dynamics of the LTL market,” Subramaniam said on Thursday. “Through this process, we will unlock value for our freight business.”
While they would become separate companies, FedEx and FedEx Freight would continue to co-operate on commercial, operational and technology initiatives, the company said. It expects to complete the spin-off within 18 months.
