YRC Worldwide Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of trucker YRC Worldwide (Nasdaq: YRCW  ) continued a two-day slump, falling as much as 25% in intraday trading today after shedding 22% yesterday.

So what: Yesterday, YRC announced that it had reached an agreement with Teamsters and lenders to move ahead with a plan to inject new capital into the company, convert some debt into equity, and restructure other debt. Sounds good right? Perhaps if you're a debt holder or a Teamster. But for equity investors, the deal promises, according to YRC, "very substantial dilution." We don't know exactly what that means yet because the press release was short on specifics, but it doesn't sound promising.

Now what: What's clear is that equity holders being left with something rather than the goose egg that they'd likely be grasping in the case of a YRC bankruptcy is a plus. However, shareholders couldn't be blamed for wondering what exactly they're going to own when this is all said and done. Perhaps they'll collectively claim the equivalent of one YRC truck? Or share ownership of a hubcap? Shareholders have gotten steamrolled in this restructuring process, but it's a good reminder of what it means to be an equity owner and be first in line to take a hit in times of financial distress. It's likewise a lesson in how leverage can clobber shareholders even if a company doesn't end up bankrupt.

Want to keep up to date on YRC Worldwide? Add it to your watchlist.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (8) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 01, 2011, at 5:32 PM, dougluvs wrote:

    YRCW can always do another 1-25 reverse split in due time....

  • Report this Comment On March 01, 2011, at 7:32 PM, Pat4Ra wrote:

    Matt,

    Is this good situation for new money? What plans do they have to turn the business up and runnig good? - Thx, Pat

  • Report this Comment On March 01, 2011, at 7:57 PM, TMFKopp wrote:

    @dougluvs

    "YRCW can always do another 1-25 reverse split in due time...."

    Gob would appreciate reverse splits because they are an illusion (any Arrested Development fans?).

    That would not fix the dilution issue for investors at YRC, it would only make some investors *think* the dilution issue has been fixed. The bottom line is that shareholders currently have a claim to a certain % of the company's profit. After this restructuring, that % will fall drastically.

    Think about it this way... Let's say there's $100 in a lockbox and each of us gets a "share" in that lockbox. We could say that each of our shares is worth $50.

    Now we cut two more people into the mix, giving each of them a share. Our ownership stake in the lockbox has now declined to 50% -- or 25% each. It doesn't matter whether we say that there are four shares or 16 million shares outstanding, the bottom line is that we used to each own shares worth $50 and now they're worth $25.

    Matt

  • Report this Comment On March 01, 2011, at 11:28 PM, cocostar wrote:

    OK we're now going to play the shell game, with your money of course!! Round and Round we go we don't own anything, we lease everything, round and round we go!! We are an international corporation our losses are your losses round and round we go!! We are special interest and we rape pillage and steal from Americans, round and round we go!! Our main goal is to destroy organized labor and your commie government is on our side round and round we go!! Wait till you try to write off your weekly stock purchase as a loss round and round we go and where we stop you'll surely know!!

  • Report this Comment On March 02, 2011, at 11:00 AM, HAVENODEBT wrote:

    C11 last year C7 this year, the only difference is there was not a judge present.

    The current condition of this company is a debtor in possession, in my opinion.

  • Report this Comment On March 02, 2011, at 4:54 PM, JingleFactory wrote:

    Just like in all zombie movies, the best advice is to run away from the walking dead.

  • Report this Comment On March 02, 2011, at 11:01 PM, TMFKopp wrote:

    @Pat4Ra

    "Is this good situation for new money?"

    Ugh... The short answer is "no." At least, it's not a stock that I'd consider myself.

    Could it work out as a speculation? Sure. But it's definitely a speculation at this point and I'd put money on it the way you'd put money on the spin of a roulette wheel.

    Matt

  • Report this Comment On March 03, 2011, at 2:57 PM, broste21 wrote:

    As a fregiht broker, I have been watching this company for a long long time. I have a really hard time believing that the current administration will let a union compnay this large fail.

    The transportation biz has been pro shipper for the last 4-5 years....Now, this has changed. The economy has seen an upswing and a large number of the mom and pop carriers have gone OOB, leaving, in the first quarter, a moderate to severe capacity issue nationwide.

    If fuel can stay out of the 4-5 per gallon range, this year will be pro carrier in a huge way.

    If YRC cannot survive in this environment....it is run by clowns.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1450590, ~/Articles/ArticleHandler.aspx, 9/18/2014 4:09:27 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement