Sandy Springs-based UPS, which is slashing costs as it seeks to boost its bottom line, is selling its Coyote Logistics freight brokerage unit for $1.025 billion, nine years after acquiring the business for $1.8 billion.
Charlotte, North Carolina-based RXO Inc. is buying Coyote to become the third-largest brokered transportation provider in North America, according to a Sunday announcement.
The deal is subject to regulatory approvals and closing conditions, and is expected to close by the end of this year. After the transaction is completed, UPS plans to update its financial outlook.
“As UPS positions itself to become the premium small package provider and logistics partner in the world, the decision to sell our Coyote Logistics business allows an even greater focus on our core business,” said UPS CEO Carol Tomé said in a written statement.
UPS bought Chicago-based Coyote in 2015, a company it already relied on to supply extra capacity during the peak holiday shipping season. Coyote arranges freight shipments on available space on trucks contracted to trucking companies in its carrier network, and at the time UPS said there were opportunities for “growth, synergistic efficiencies and transfer of best practices and systems.”
But earlier this year, Tomé announced plans to cut costs after reporting a sharp decline in revenue and profit, amid rocky economic conditions and business losses during tense labor negotiations last year.
UPS’ reductions included cutting 12,000 jobs and a renewed focus on driving efficiency.
It was then, in January, that Tomé announced plans to explore strategic alternatives by potentially selling Coyote, saying that when it was acquired in 2015, she was on the board but “what I don’t think we fully understood at the time was just how cyclical this business is,” bringing drastic shifts in revenue and low margins.
UPS saw a spike in demand for shipping during the COVID-19 pandemic as consumers ordered scores of products for delivery to their homes, followed by declines in volume that hurt its financial performance last year.
Overall, UPS reported revenue about $91 billion for 2023, down 9.3% year-over-year, and a $6.7 billion profit, down nearly 42% from 2022
Under the terms of the agreement, RXO will pay $1.025 billion in cash for Coyote and will continue to provided brokered transportation service to UPS under a contract that runs through January 2030.
RXO said the deal will increase the number of customers that it does more than $1 million in business with by about 80%. Both RXO and Coyote offer asset-light, tech-enabled transportation brokerage services. Coyote’s digital freight platform allows companies to book freight transportation, matching more more than 10,000 shipments a day in its network of 100,000 carriers.
Coyote in 2023 generated about $3.2 billion in revenue and about $86 million of earnings before interest, taxes, depreciation and amortization, according to RXO.
RXO said it expects annualized cost synergies of at least $25 million with the Coyote acquisition.
When the acquisition closes, Coyote employees will become RXO employees, according to RXO, which did not have further details on how those employees will be affected.
RXO CEO Drew Wilkerson said in a written statement: “I look forward to welcoming Coyote’s employees to our team and working together to achieve excellent results for our customers, shareholders, carrier partners and employees for years to come.”
In the transaction, UPS has King & Spalding as its legal adviser and J.P. Morgan Securities as its financial adviser.
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