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YRC Puts It In Reverse

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Fresh from striking a tentative agreement with the Teamsters, YRC Worldwide (Nasdaq: YRCW  ) is now turning its attention to its pocket-change share price.

The trucker specializing in less-than-truckload shipments will execute a 1-for-25 reverse split on Friday. Every 25 shares will be exchanged for a single new share at a price that is 25 times higher.

For example, based on last night's close of $0.32 a share, every 25 shares would be replaced with a single share at $8. It's a zero-sum game, but it has a funny way of replacing speculators with serious investors.

Shares of YRC took a hit in after-hours trading, but that's just the penny stock chasers bailing. If YRC is able to take advantage of driver concessions to steer its way back toward profitability, the company will be more valuable in the future.

YRC didn't really have much of a choice here. It was about to be delisted by NASDAQ (Nasdaq: NDAQ  ) , under an arcane policy that boots stocks from the exchange if they trade below $1 for extended periods of time, regardless of the company's actual market cap or enterprise value. YRC had scheduled a meeting to appeal the move next month, but NASDAQ was unlikely to budge -- and YRC's shares were unlikely to more than triple in that time.

The problem with YRC is the same one that keeps Sirius XM Radio (Nasdaq: SIRI  ) so close to the $1 mark despite rattling off several great quarters. Both companies just have way too many shares outstanding, with Sirius XM at nearly 3.9 billion shares issued.

In YRC's case, it has a whopping 1.2 billion shares outstanding after its highly dilutive recapitalization efforts over the past year. A year ago, YRC only had 59.5 million shares outstanding. Sadly, the reverse split will be essentially undoing the dilutive share damage, as YRC expects to have roughly 48 million outstanding common shares after Friday's move.

Ignore today's initial repulsion. YRC's fundamentals are better than that. FedEx's (NYSE: FDX  ) decision to combine its freight businesses earlier this month should help eliminate the discounting that's been plaguing the less-than-truckload shippers. YRC and rivals Old Dominion Freight Lines (Nasdaq: ODFL  ) , Arkansas Best (Nasdaq: ABFS  ) , and Con-way (NYSE: CNW  ) initially rallied on the FedEx internal consolidation news two weeks ago.

Pulling in reverse isn't the end of the road, YRC shareholders. Sometimes it's necessary to back out a bit before heading to where you're going.

Are reverse splits good or bad? Share your thoughts in the comment box below.

Nasdaq OMX Group is a Motley Fool Inside Value recommendation. FedEx is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended writing covered calls on Nasdaq OMX Group. The Fool owns shares of FedEx. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz misses the Tonka trucks he used to play with when he was little. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (32)

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 September 30, 2010, at 3:42 PM, Mustang6147 wrote:

    I cant believe that this proposal would get passed. It is horrible. and R14 from is a big sissy! if you dont agree with his point of veiw he bans you! You big candy a$$.... Go cry to mommy!

  • Report this Comment On September 30, 2010, at 4:49 PM, southernbeachguy wrote:

    Bummer, I have had 3 stocks do R/S in the past 6 months and all 3 have gone down even further after the Split. As I have always said a R/S is a Shorts best friend. Thank God I own Sirus and they have refused to split.

  • Report this Comment On October 10, 2010, at 4:00 PM, jorge4793 wrote:

    just another way of cheating stock traders, the new cf co.

  • Report this Comment On November 23, 2010, at 9:45 PM, wutwilido wrote:

    Dan Marzocco in his small stature is running the midwest division straight into the ground. This midget amongst men can't get past his own physical short cummings. too bad , he is ruining a decent company, if the bankers & investors knew how he is ruining this company to satisfy his own deficient physical impairments-hes a midget-he had to negotiate with Teamsters local 705 for the last 25 years & now he sees a chance to shore up his own shortcomings at the expence of the whole YRC company and all the Teamsters who spent their lives buildind it. Shame on you Danny .

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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