Pitney Bowes has sold a controlling interest in its struggling Global Ecommerce, or GEC, unit after a monthslong board review of the business’ future.
Now in the hands of liquidator Hilco Global, entities “representing a substantial majority” of GEC will be put under the Chapter 11 bankruptcy protection process until it winds down. Under Hilco, GEC has been renamed DRF Logistics, which will operate briefly to enable customers to transition to other providers.
Facilities will accept customers’ domestic standard delivery and domestic cross-border U.S. outbound packages until noon local time on Saturday. All packages presented at those facilities after the fact will be turned away. DRF will not accept returns parcels in its pickup and drop-off network, but will pick up returns from the U.S. Postal Service network through Sept. 5.
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Pitney expects the sale to eliminate “substantially all of the losses” associated with GEC, wiping out approximately $136 million in losses for the year ended Dec. 31, 2023.
On top of the anticipated savings from the GEC segment divestment, the logistics provider currently has a companywide cost-savings target between $120 million and $160 million. Much of that is expected to be realized in 2024.
“When the company announced our four strategic priorities in late May, we committed to working with speed and urgency to complete a comprehensive review of alternatives for GEC,” said Lance Rosenzweig, interim chief executive officer of Pitney Bowes, in a statement. “We are pleased to have delivered on that commitment by concluding a productive review and identifying an exit path for GEC that provides for an orderly and efficient wind-down of the business, which will ultimately maximize value for Pitney Bowes shareholders.”
The writing on the wall became apparent in early July, when the company announced GEC unit president Gregg Zegras retired from the role, with no replacement named.
GEC, which provides business-to-consumer logistics services for domestic and cross-border parcel delivery, returns and fulfillment for companies Abercrombie & Fitch, like Shein and Victoria’s Secret, was the center of a proxy fight brought on by hedge fund Hestia Capital last year due to the unit’s declining earnings since 2015. At the time, Hestia said GEC was holding back the company’s other areas of the business and sought to replace then-CEO Marc Lautenbach.
Ancora Holdings also pushed for Pitney to sell the segment later in the year, also calling for the company to replace Lautenbach, as well as board chair Mary Guilfoile in the process. Both executives have since stepped down for their roles as the company.
In Pitney Bowes’ second-quarter earnings report, the GEC segment saw 7 percent growth in revenue to $326 million and an adjusted EBITDA loss of $31 million, which marked a 17 percent improvement from the year prior.
But the better numbers were too little, too late for GEC, which had a 14 percent decline in revenue to $1.36 billion in 2023, alongside $67 million in an adjusted EBITDA losses.
GEC’s demise also has been exacerbated by a rough backdrop in the overall freight and parcel market. Like Pitney Bowes, couriers like UPS, FedEx and the USPS have all implemented their own form of massive cost reductions starting in 2023.
“The market is clearly at overcapacity,” former interim CEO Jason Dies said during the company’s earnings call on May 2. “You heard that from multiple of our competitors. You heard it from the USPS as they talked about their volumes. That’s creating tremendous pressure on rate per piece.”
According to Rosenzweig, who replaced Dies in the role in May, the sale also is designed to help Pitney Bowes increase profitability across its core, cash-generating businesses, including parcel shipping software solution SendTech, mail sorting and distribution service Presort and its financial services division.
Those three units will continue to operate as normal, and customers, partners and vendors should not expect any impact.
A subsidiary of Pitney Bowes will provide roughly $45 million in debtor-in-possession financing to support the efficient liquidation of the entities, the company said. The shipping and mailing company also said it expects to incur one-time cash costs that would not exceed $150 million in connection with the exit.
The sale comes mere days after Pitney Bowes divested its fulfillment division within the GEC unit, and a Kentucky warehouse, to fulfillment services technology provider Stord.
In the second quarter, Pitney Bowes increased revenue 2 percent to $793 million, amid a net loss of $25 million.