(News Bulletin 247) – The American group has announced the split of this division which must take place within 18 months. This should allow the two future companies to better allocate their resources.

This is a major market principle: investors tend to value activities better when they are listed separately. They therefore often grant more generous stock market multiples to “pure players”, focused on one profession, than to diversified groups.

For this reason, conglomerates tend to become rarer on the stock market. In Germany, Siemens has listed several of its businesses on the stock market, notably its energy branch and that dedicated to medical devices and imaging. In the United States, General Electric, one of the most famous conglomerates in the world, completed its separation at the beginning of this year into three companies, respectively focused on aviation, health and energy.

Another large American company decided on Thursday evening to carry out a split. The specialist in parcel delivery and international logistics Fedex has announced the plan to spin off its “Fedex Freight” division via an IPO.

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Not a stock market panacea

This segment specializes in so-called “LTL” (“less than truckload”) freight, i.e. freight where the cargo does not occupy all the space of a truck.

“LTL freight (less than truckload freight) is a type of freight shipping where the cargo does not take up all the space on a truck. Instead, the truck carries cargo from multiple customers, the goods from each customer often weighing between 150 and 15,000 pounds (between 70 kilograms and 7 tons, Editor’s note)”, explains Uber Freight on its blog.

This segment generated $9.4 billion in Fedex’s last reported fiscal year, out of a total of just over $87.7 billion.

The company argues that this split into two entities would have several virtues. It would allow each company to better focus on its operational challenges and to be “more agile” to meet the needs of (their) customers” while better seizing growth opportunities.

“Separate stock market listings, with separate shareholder bases, will strengthen each company’s value proposition (…) Each company will be well capitalized and have the flexibility to invest in profitable growth and return capital to shareholders” , also explains the company. This split must be approved within 18 months.

The group also delivered its results for the second quarter of the 2024-2025 financial year, with revenues of $22 billion, down slightly by 0.1% year-on-year, while its earnings per share increased. established at $4.05 compared to $3.99 a year earlier. The company also lowered its full-year earnings per share forecast to a range of $19 to $20 from a range of $20 to $21.

On Wall Street, however, Fedex shares jumped 7.8% in post-market trading following these announcements, to $297.52, with investors welcoming the split plan.

Let us emphasize, however, that a split does not constitute a stock market panacea either. The recent example of Vivendi, which split into four listed entities on Monday, illustrates this well.

The very objective of this division into four companies was to reduce the heavy conglomerate discount from which Vivendi was suffering. However, at present the four companies resulting from this separation weigh, together, around 7.4 billion euros, compared to 8.4 billion euros for Vivendi as a whole at the close of Friday, the last session before the implementation of the split.