Teamsters Reject Contract, Raising Bankruptcy Fears for YRC Worldwide

The sell-off at YRC Worldwide (NASDAQ: YRCW  ) that began yesterday is fast turning into a rout.

When rumors emerged on the Bloomberg site Thursday that the Teamster Union at YRC, which has been voting on a deal to extend a 15% hourly wage rollback through 2019, might reject the contract, a swift sell-off ensued. Shares dropped 16% in the ordinary trading hours after Bloomberg reported early in the day that "a splinter group" within the union was predicting the contract would be rejected.

And then, yesterday evening the rumors were confirmed: By a 61% to 39% vote, "the International Brotherhood of Teamsters announced earlier today that employees did not approve the Memorandum of Understanding (MOU) extension proposal made by YRC Worldwide Inc," said management. "Company officials are in contact with Teamster leaders to explore options."

What those options may be is now the big question at YRC.

Where do we go from here?
Putting a brave face on things, CEO James Welch assured shareholders and customers that "despite the vote results, it is business as usual as we have approximately 15,000 trucks on the road today serving 250,000 customers. We will keep our customers, employees and stakeholders advised of our efforts." However, it's Welch's warning from back in November, that "some companies in our position have simply declared bankruptcy," that's ringing louder in investors' ears right now.

A pictorial representation of what YRC said would happen to it if the Teamsters voted down the contract extension -- as they now have done. Source: YRC Worldwide.

Late last month, news that YRC had talked its lenders into agreeing to a sizable debt-for-equity swap that would cut the company's debt load by more than $300 million sparked a surge in YRC's stock price. But as I warned at the time, "This whole deal hinges on YRC's Teamsters agreeing to extend their pay cuts into 2019." Failing that, "the whole deal drives into a ditch."

And this is where we stand today. The deal is dead, at least until YRC tries to twist arms and get a revote called. Meanwhile, just a little more than one month from today, the first $69 million installment on YRC's debt comes due -- soon to be followed by $1.3 billion more in obligations, which YRC lacks the cash to pay.

Bankruptcy is a real possibility. The clock is ticking. And investors are right to be scared.

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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 January 10, 2014, at 2:30 PM, VictorLudlow wrote:

    The drama at YRCW has been playing out for years, and nearly every rabbit you can think of has been pulled out of the hat to keep this once stellar freight line afloat. Welch is a good manager in a tight spot, but how can employees be expected to go another 5 years at not only a big wage reduction but also big concessions on work rules and pensions. The only answer would be that were they to close the pickings aren't any better and starting over without seniority at a new job isn't pleasant. A re-vote if there is one, that extends the MOU would at least register employees frustration, but buy time. It's pitiful that working peoples wages in America have been stagnant for so long and in many cases fell ! Government, media, and vendors seem to think everyones rich and has unlimited resources. As the new year progresses it will become more apparent this isn't the case.

  • Report this Comment On January 13, 2014, at 4:44 PM, supersnouser wrote:

    we have gave so much, and the vacation thing is not going to work!!! That is just another taking in 2 ways from one source. They need to leave this one alone!!!! Hope they work out something else, we

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