
In 1965, a Yale student named Fredrick Smith wrote a business plan for a term paper. Legend has it that, Smith, a friend of both John Kerry and George W. Bush at Yale, received a C on the paper. Six years later, following meritorious military service as a Marine, Smith took that business plan and, using his significant inheritance, started Federal Express. After two more years of hard work, on April 17, 1973,Federal Express began operations in Memphis, Tennessee, with 389 team members. That night, 14 aircraft delivered 186 packages to 25 U.S. cities.
From there, the company grew, going public in 1978 and, later, shortening its name to FedEx(FDX). Today with a market cap of almost $67 billion and 2024 revenues of $78.3 billion, FedEx is a behemoth of shipping and logistics. With that scale and disparate businesses it becomes increasingly difficult to be nimble and maintain efficiency and growth. Like many companies faced with this predicament, FedEx has decided to pursue a spinoff.
FedEx To Execute FedEx Freight Spinoff in next 18 months
FedEx announced on December 19, 2024 its intention to spin off FedEx Freight to shareholders as an independent publicly traded company. FedEx Freight is the largest less-than-truckload(LTL) carrier, with $9.4 billion in revenue in 2024. Still, it is much smaller than FedEx’s global parcel business which is what will remain after the spinoff.
After the spinoff, which is expected to be tax free and to take place within the next 18 months, both companies will continue to use the FedEx name and work together under a commercial agreement.
In its announcement of the FedEx Freight spinoff, FedEx provided an unusually detailed strategic rationale for the transaction:
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. 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.
Unlike many spinoffs, this is not motivated by the desire to detach a great business from an awful one. With strong balance sheets and an ever increasing need to transport goods- both parcels and LTL shipments- both companies may provide compelling opportunities for investors post spinoff.
Disclosure: The author holds no position in any stock mentioned