UPS-TFI International Signs $ 800 Million Deal for UPS Freight

UPS (NYSE: UPS) has agreed to sell its freight division to TFI International (NYSE: TFII) for $ 800 million by the second quarter of 2021. While investors in both companies applauded the development, TFI International stock has reacted more strongly and has risen by double-digit percentages at the time of writing. this article, signaling the thanks of the shareholders of the Canadian transport and logistics company.

For UPS, this is the first big step since CEO Carol Tome revealed plans to streamline the business after taking over in June 2020.

Here’s why UPS sells UPS Freight

UPS operates three main segments: US Domestic Parcel, International Parcel, and Supply Chain and Freight. UPS Freight is part of the flexible chain and freight segment, which also includes transportation and logistics. UPS Freight, which provides regional, inter-regional and LTL services, generated $ 3.3 billion in revenue in 2019. It represented approximately 4.4% of total UPS revenue during the year .

The decision to sell UPS Freight aligns with “the company’s ‘better, not bigger’ strategic positioning,” the press release said. In other words, this matches what Tome said on UPS’s second quarter earnings conference call in July 2020: “We will laser focus on creating value for our customers. shareholders, with the aim of increasing rates of return on capital. we invest. It’s about getting better, not bigger. “

It seems like a good decision if the recent operational performance of UPS Freight is valid. Be aware that in the nine months ended September 2020, UPS Freight’s revenue declined 5.1% year-over-year, even as transportation and logistics grew 11, 7% and 14% of their income, respectively.

Financial impact on UPS and TFI

UPS Freight fits well with TFI’s aggressive efforts to grow in North America. It is also a debt-free deal and is expected to add 197 facilities of approximately 6 million square feet to TFI’s portfolio. While UPS Freight was close to breaking even on an operating profit basis, TFI expects the deal to be accretive to its profits in 2021.

UPS, however, could incur a pre-tax depreciation charge of $ 500 million on the sale, which should be reflected in its figures for the year 2020. Ultimately, UPS expects the divestment to increase its margin. operational efficiency and help reduce debt.