06:17 AM EDT, 06/24/2024 (MT Newswires) -- United Parcel Service ( UPS ) has agreed to offload its freight brokerage business, Coyote Logistics, to transportation services company RXO (RXO) for about $1.03 billion.

The sale is part of the package delivery company's efforts to streamline its operations and focus on its core business, UPS said in a Sunday statement. The deal, which requires approval from regulators, is expected to complete by the end of the year. Shares of UPS edged up 0.2% in premarket activity Monday.

UPS said earlier in the year that it was exploring strategic alternatives for Coyote, which it acquired for $1.8 billion in 2015. Chief Executive Carol Tome told analysts during a fourth-quarter earnings call in January that the division has been a drag on the company's bottom line, with a "very low margin" and revenue "way down" since the COVID-19 pandemic.

"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," Tome said in the Sunday statement. UPS intends to update its financial outlook once the deal closes.

In a separate statement, RXO said it will pay the transaction price in cash and fund the acquisition through a combination of equity and debt. The company, which offers tech-enabled truck brokerage services, has equity investments of $300 million and $250 million from its two largest investors MFN Partners and Orbis Investments, respectively, for the deal. RXO's stock jumped 14% pre-bell.

RXO expects the acquisition to strengthen its market position, widen its carrier network and expand the number of customers that do more than $1 billion in business with the company by roughly 80%, said CEO Drew Wilkerson. The firm will continue to serve UPS' brokered transportation needs through January 2030.

"RXO will realize significant synergies from the acquisition by quickly integrating Coyote's business into RXO and leveraging our cutting-edge technology," Wilkerson said. "This acquisition will provide RXO with both immediate and long-term opportunities for revenue and earnings growth and will generate significant returns for shareholders."

RXO estimates the deal to be immediately and "significantly" accretive to its adjusted earnings on a per-share basis and generate annualized cost synergies of at least $25 million. It reiterated second-quarter guidance for adjusted earnings before interest, taxes, depreciation and amortization of $24 million to $30 million.

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