Less-than-truckload (LTL) carrier YRC Worldwide Inc. said today it had made a preliminary proposal to acquire Arkansas Best Corp., a deal that ostensibly would include its unionized LTL division, ABF Freight System Inc.; its nonunion expedited transportation business; its truck brokerage operations; and other units.
According to a source close to the situation, a preliminary offer of $18 per share was—and may still be—on the table for Arkansas Best.
The source said it was unclear if the proposal was an all-cash deal or a combination of cash and other financing instruments. In less than a week, Arkansas Best's stock has jumped from $10.33 a share to close at $16.71 per share today, up $1.36. At current share prices, the company's market capitalization stands at slightly more than $394 million.
As of March 31, YRC's liquidity—which includes cash, cash equivalents, and available funds under a $400 million asset-based loan—was $214.8 million, the company said when it released its first-quarter results earlier this week.
The recent surge in Arkansas Best stock coincided with a May 3 announcement that ABF and international leaders of the Teamsters union had agreed on a tentative five-year contract containing an undetermined level of wage and benefit concessions. ABF, which has the highest labor cost structure in the LTL industry, has stressed for months that it needs to bring its labor expenses in alignment with its rivals, many of whom are nonunion, in order to remain competitive.
YRC CEO James L. Welch implied in a statement today that he and YRC will not take no for an answer. "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," he said.
Fort Smith, Ark.-based Arkansas Best said last night that Welch met with CEO Judy McReynolds on March 22 at Arkansas Best's headquarters to discuss a possible combination. Arkansas Best said in its statement that YRC approached it in late March with an interest in exploring a possible deal only for ABF, which accounts for roughly 80 percent of Arkansas Best's revenue. However, Arkansas Best said it told YRC in early April that ABF had other issues on its plate and that "considering a transaction with YRC was not appropriate at that time." The companies have not talked since then, according to the statement.
Today's statement from Overland Park, Kan.-based YRC took on a slightly different tenor, seeming to suggest that Arkansas Best was receptive to a transaction. According to the statement, McReynolds discussed the proposal with her company's board of directors, but Arkansas Best declined to enter into talks with YRC because the "timing was not right to consider such a transaction."
Neither company would comment beyond their respective statements.
Labor in Limelight
Organized labor will play a critical role in determining the future of any YRC-Arkansas Best combination or if a deal has any future at all. Word of the CEO discussions and the possible acquisition by YRC leaked out as ABF and the Teamsters are trying to consummate a new five-year collective bargaining agreement. Labor and management are currently operating under the second of two one-month extensions to the existing five-year contract, which originally expired March 31. The current extension expires May 31.
According to the source, Teamster officials bargaining with ABF were unaware until recently of any high-level discussions over a possible transaction. By the time they were notified, contract talks were at an advanced stage, according to the source. Neither the 7,500-member ABF rank-and-file or officials of Teamster locals representing the workers knew of YRC's interest in their company before news of it appeared last night on DC Velocity's website. A spokesman at Teamsters headquarters in Washington declined comment.
Officials of the various Teamster locals are scheduled to meet the week of May 20 to review the contract proposal. Should the local leaders approve it, they will then need to sell it to a scrappy and independent group of rank-and-file workers. Three years ago, they rejected a contract offer that called for significant concessions similar to what union workers at YRC granted the company to keep it afloat. The rejection came after Teamster leaders approved the deal.
There are several scenarios in play at this time. The rank-and-file could choose to accept the proposed contract. Union members could also reject the contract proposal, and both sides could return to the bargaining table. If that happens, the existing contract could be extended again for an agreed-upon time period. Alternatively, operations could continue without a contract, although such a move would be dicey because the union could call a strike without notice on or after June 1.
In the current environment, however, there is another factor to consider: A rejection by the rank-and-file would likely send Arkansas Best's stock falling, which ironically would make it cheaper for a potential suitor to buy the company. It could also make Arkansas Best's board and management more willing to sell because they may see little hope of making a significant change in their labor cost structure.
Arkansas Best said it was "very pleased" with the May 3 agreement. It noted that ABF Teamsters would remain the best paid in the LTL sector. However, the source said the tentative contract didn't deliver the magnitude of concessions that management wanted.
In mid-2009, YRC's rank-and-file agreed to a series of extraordinary concessions calling for 15-percent wage cuts and an 18-month suspension of the company's pension contributions. YRC resumed contributions in 2011, but at levels 75 percent below what it was contributing prior to the 2009 deal. Full pension payments are set to resume in 2015.
The agreements sparked a lawsuit by ABF against the Teamsters and YRC alleging the deals were struck outside of the main collective-bargaining agreement governing the trucking industry, and they should be made null and void. Despite several setbacks, ABF has continued with its suit.
In return for the givebacks, the Teamsters were given the right in 2011 to name two directors to YRC's board. One is Douglas O. Carty, co-founder and chairman of Switzer-Carty Transportation Inc., a Canadian company specializing in school bus transportation services. The other is Harry J. Wilson, a former financier who today is chairman and CEO of Maeva Advisors LLC, a New York-area company that holds itself out as a non-traditional corporate restructuring concern.