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YRC is silent on what to do after rejection of contract proposal

Updated: 2014-01-11T03:34:12Z

By MARK DAVIS

The Kansas City Star

With no word coming from YRC Worldwide Inc. on Friday, investors hammered its stock price and analysts speculated on the trucking giant’s future.

Investors, shippers and employees had hoped to hear how the company would respond to the Teamsters’ overwhelming defeat Thursday of a contract proposal that management had called critical to YRC’s financial health.

“We are unsure what Plan B is, but we expect to hear about it soon,” analyst David Ross said in a note to clients of Stifel Nicolas and Co. Inc.

Teamsters voted 61 percent against the deal, which would have extended a 15 percent pay cut and sharp pension reduction into 2019 and made changes to raises, vacation pay and YRC’s use of other carriers. The current contract runs through March 2015.

Without approval, the Overland Park-based company had said in recent weeks it would be unable to refinance more than $1 billion in debt that it can’t repay. Chief executive James Welch even told employees in a letter that some companies in such circumstances have filed for bankruptcy.

Welch, in a statement Thursday after the contract vote, said the company’s fleet of 15,000 trucks continued to serve its 250,000 customers and YRC was in contact with the Teamsters about its options. A meeting with lenders Friday was canceled.

With no additional guidance from the company, Wall Street analysts warned that YRC may lose freight business to rival carriers. And they mulled the possibility of a bankruptcy filing.

YRC shares fell $2.09, or 13.3 percent, and closed at $13.58. At one point, shares fell as low as $11.81. The drop followed a 16 percent decline Thursday when early reports suggested the contract proposal would fail.

Shares of other trucking companies — Con-Way, Arkansas Best and Old Dominion Freight Line — rallied on the possibility they may gain if shipping customers become uneasy about using YRC Worldwide.

Equity analyst Jason Seidl, in a note to clients at Cowen and Co., said most of the other carriers probably have “contingency plans for taking on additional freight.”

YRC had gone to great lengths in 2009 and 2010 to restructure its finances and win concessions from its Teamsters employees to avoid a bankruptcy reorganization.

Seidl, in his note Friday, said those efforts had merely pushed the financing question down the road, and bankruptcy “cannot be ruled out at this point.”

However, analyst Thomas Albrecht, in a note to clients at BB&T Capital Markets, said a bankruptcy filing wouldn’t be an “automatic byproduct” of the failed contract vote.

YRC, Albrecht said, could “go back to the Teamsters with a new proposal.” It also could sell some assets to raise cash, with Albrecht mentioning its profitable regional carriers — New Penn, Reddaway and Holland. YRC Worldwide also operates YRC Freight, its struggling national carrier.

Finally, Albrecht said lenders are under pressure to work with YRC to avoid bankruptcy, as they have in the past.

“Chapter 11 bankruptcy has typically been a death knell for a trucking company,” Albrecht said.

Teamsters officials had said Thursday that its members rejected the contract proposal after giving up billions of dollars over five years to help solve the company’s finances. The vote showed “a majority made the decision not to sacrifice anymore,” Teamsters freight division director Tyson Johnson said.

Welch, in the company’s statement Thursday, blamed the outcome on timing.

The mail-in vote ran from the second week of December to Jan. 8. Most Teamsters, he said, had voted before Dec. 23 when the company announced a partial refinancing deal.

Some employees offered their own ideas of why the contract failed.

A Reddaway employee said some no votes stemmed from bonuses management collected even while asking the union to give more.

“They’re not giving back to help us,” he said, asking not to be identified because it could jeopardize his work.

A Holland driver in Michigan said many Teamsters would have supported simply extending the current contract.

“We were told at first by our local union officials that it would just be an extension, so there was a great deal of anger when they asked for more,” he said, also asking not to be identified by name.

Rafael Toledo, a long-time Holland driver in Buffalo, N.Y., said management erred by not asking employees what they needed to compete against rivals.

For example, he said, drivers’ productivity has suffered from a restriction on vehicle speeds aimed at saving fuel.

“I hope this sends a message to Mr. Welch,” Toledo said. “We want to be competitive.”

To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com.

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