What happened

Shares of XPO Logistics (XPO 1.17%), a global transportation company specializing in less-than-truckload shipping and freight brokerage, were climbing today after management announced it would split the company in half, breaking apart those two divisions and divesting from the company's remaining operations.

The move comes after XPO successfully spun off its contract logistics business, GXO Logistics, last August and investors applauded as GXO shares have climbed 30% since the stock started trading.

Today, XPO shares were up 13.6% as of 3:06 p.m. ET on the news.

An XPO truck on the highway.

Image source: XPO Logistics.

So what

In a press release last night, the company said it had approved a plan that it believes is "the optimal path to unlock value for XPO shareholders." That plan is to create two stand-alone companies, one as a tech-enabled brokered transportation business and the other as a North American less-than-truckload (LTL) carrier. LTL is a shipping service for relatively small loads or quantities of freight that minimizes costs of individual shipments.

Management plans to sell off the remainder of XPO, which includes its European business and North American intermodal operations.

The company intends to spin off the freight brokerage, leaving XPO as a pure-play LTL company that will be the third-largest provider of domestic and cross-border LTL shipping. Management also said it would either sell the European business or take it public on a European stock exchange, and that it was in talks with a buyer for its intermodal business.

CEO Brad Jacobs explained the move, saying: "Our two core businesses of North American less-than-truckload and tech-enabled truck brokerage are industry-leading platforms in their own right, each with a distinct operating model and a high return on invested capital. We believe that by separating these businesses through a spinoff, we can significantly enhance value creation for our customers, employees and shareholders, as we did with our successful spinoff of GXO last year."

Now what

Though the announcement might have been unexpected, it's not a complete surprise. In fact, in January 2020 the company had announced its intention of spinning off all of its business segments except North American LTL, though it scotched that idea after the pandemic hit.

Given the success of GXO and Jacobs' belief that XPO stock has been undervalued because of a "conglomerate discount," it's not surprising to see the company separate LTL and the freight brokerage, each of which have their own distinct strengths and advantages.

After that strategy proved to be the right move with GXO, it makes sense that the market cheering today.