MEMPHIS, Tenn. — FedEx Corp.’s board of directors has concluded a comprehensive assessment of the role of FedEx Freight as part of its portfolio and has decided to pursue a full separation of FedEx Freight through the capital markets, creating a new publicly traded company.
According to a press release, the separation is expected to be achieved in a tax-efficient manner for FedEx stockholders and executed within the next 18 months.
“This is the right time to pursue a separation as we respond to the unique dynamics of the LTL market,” said Raj Subramaniam, FedEx Corp. president and chief executive officer. “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.”
According to the release, as two industry-leading public companies, FedEx and FedEx Freight will continue to pursue their growth strategies. 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. They will also maintain the strategic advantages of cooperation on key commercial, operational, and technology initiatives. Customers of both businesses will continue to enjoy the same superior service, speed, and coverage they have come to expect from FedEx.
“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 Corporation Board is confident that a separation of FedEx Freight will drive continued growth and value creation.”
Strategic Rationale
In its recently completed assessment, FedEx concluded there are strategic opportunities that arise from separating FedEx Freight into an independent company and substantial benefits from the continuing commercial collaboration of FedEx and FedEx Freight, the release said. Through a separation, both FedEx and FedEx Freight will benefit from:
- Enhanced Operational Focus and Strategic Execution: Deeper operational focus, accountability, and agility to meet customer needs will better enable both companies to capture profitable growth opportunities and unlock market value. FedEx will continue executing its strategic initiatives, including DRIVE, Network 2.0, and Tricolor.
- Distinct and Compelling Investment Profiles: Separate public stock listings with distinct stockholder bases will enhance the value proposition for each company.
- Strong Balance Sheet and Capital Allocation Optionality: Each company will be well-capitalized, with flexibility to invest in profitable growth and return capital to stockholders.
- Maintained Commercial, Operational, and Technology Synergies: 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.
- A Shared Brand: The FedEx brand represents speed, reliability, and trust. These values will extend across both businesses with the new company continuing to operate under the FedEx Freight name.
FedEx Value Proposition
“FedEx pioneered the express transportation industry more than 50 years ago and remains the industry leader today. In fiscal year 2024, FedEx revenue totaled $78.3 billion across its remaining business segments” the release said. “The company provides a range of rapid, reliable, time- and day-definite delivery and related supply chain technology services to more than 220 countries and territories through an integrated air-ground express network. FedEx is well-positioned to continue to deliver significant value to its stockholders through its transformation and strategic initiatives, focused on reducing the company’s cost to serve while helping customers compete and win with the world’s smartest and most efficient logistics ecosystem. The initiatives underway through DRIVE are expected to create $4 billion in cost savings by the end of fiscal year 2025, while Network 2.0 is targeted to generate savings of $2 billion by the end of fiscal year 2027, supporting enhanced profitability and driving greater flexibility and efficiency across the network. FedEx remains committed to a continued strong balance sheet at both entities while continuing to reduce capital intensity and increase capital returns.”
FedEx Freight Value Proposition
With revenue of $9.4 billion in fiscal 2024, FedEx Freight is the largest LTL carrier with the broadest network and fastest transit times in its industry, according to the release. The company has deep and long-standing relationships with customers who value choice, simplicity, and reliability. With a focus on safety, facility utilization, revenue quality, and operational efficiency, FedEx Freight has maintained its leading market share position while increasing operating profit by nearly 25 percent on average per year over the last five years. The business has delivered approximately 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.
Transaction Process
The company’s intent is to execute the planned separation through a capital markets transaction, creating two independent publicly listed, industry-leading companies. The transaction is expected to qualify as a tax-free separation for U.S. federal income tax purposes.
The company expects to commence the separation process immediately, with the intent to execute the transaction within 18 months, subject to regulatory and certain other conditions, and final approval of the FedEx Board of Directors.
Goldman Sachs & Co. LLC is serving as the financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal counsel.
Dana Guthrie is an award-winning journalist who has been featured in multiple newspapers, books and magazines across the globe. She is currently based in the Atlanta, Georgia, area.
