Chain of Thought

Has YRC Jumped the Shark?

The logistics industry is all abuzz about something that didn’t happen, but that apparently could have happened, and who knows, might still happen: YRC Worldwide’s takeover of rival Arkansas Best Corp., parent of national trucking company ABF. In the wake of a terse report from the Wall Street Journal that noted that in March YRC had expressed an interest in acquiring ABF but had been rebuffed, YRC’s CEO, James Welch, came forward to say in a statement, “Our board and management believed then and believes now that the combination of Arkansas Best and YRC would be in the best interests of all employees, customers and shareholders of both companies.”

The reaction from the investment community has been on the order of “Wha— ?!?” The Motley Fool, for instance, opined, “Looks like Jonah wants to swallow the whale,” when it pointed out that YRC was attempting to purchase a company worth three times its size. In a Kansas City Star article, Art Hatfield, an analyst with Raymond James & Associates, said the deal “just doesn’t make any sense,” pointing out that “YRC’s balance sheet couldn’t handle more debt, so I don’t know what they’re thinking in that regard.”

Of course, the best quote didn’t come from the financial community, but rather from James Hoffa, president of the International Brotherhood of Teamsters, who has had a long and storied relationship with both trucking firms: ““It is unconscionable that in the middle of the IBT's sensitive negotiations for a new contract for 6,000 ABF Teamsters, and in the context of years of continuing sacrifice by our members at YRC, that YRC would advance a secret effort to acquire ABF's freight division. This interference in the collective bargaining process is an affront to all of the hardworking men and women at both companies.”

Hoffa was just getting warmed up, though, as he continued: “Before YRC begins looking for acquisition targets they should first restore our members' wages and pension contributions. We have seen this kind of arrogance from YRC before. We thought they had finally learned the lessons of past management catastrophes. Unfortunately it appears they have not. We want to give credit to ABF for rejecting this gambit, and we now will demand from YRC a full accounting of the calculations and decisions that went into their latest misstep.”

Last year, YRC reported a net profit of $24.1 million for fiscal year 2012 (on revenues of $4.8 billion), which was the first time in six years that the company had finished in the black for an entire year. In fact, most of YRC’s financial miscues of the past decade had to do with overreaching acquisitions of rival LTL carriers ($1 billion for Roadway Express, $1.5 billion for USF, etc.), exacerbated by the layoffs and union disputes Hoffa alluded to. It’s hard to imagine that YRC is in a solid enough position now to acquire ABF, but then again, stranger things have indeed happened in the transportation arena.

Consider, too, these remarks from Judy McReynolds, president and CEO of Arkansas Best, in explaining why her company’s board of directors rejected the offer: “Timing was not right to consider such a transaction.” How many times have we seen similar statements made, only to discover the translation was, “You need to sweeten the offer before we’ll accept it.”

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