Trucking company YRC Worldwide Inc. (YRCW) has reached a tentative agreement with the International Brotherhood of Teamsters. This agreement would help the struggling company save $350 million a year through March 2015 and improve its competitive position. The company is expecting that all these processes will be completed by late October 2010.
The tentative agreement would extend by two years, 2013 to 2015 and provide a further 15 percent wage reduction, benefit and work rule changes. Under this agreement, the temporary cessation of the payment of pension contributions to the multi-employer pension funds would continue until June 1, 2011, and during that time, YRC Worldwide will contribute 25 percent of the contribution rate in effect on July 1, 2009.
This agreement also gives certain power to Teamsters, such as Teamsters will have the right to approve certain changes of control at YRC Worldwide and in the event of bankruptcy, Teamsters can void the wage, benefit and work rule concessions.
YRC Worldwide is facing delisting as it has been trading below $1 dollar, which is much below the market standard. Hence, the company plans to implement a reverse stock split, at a ratio of 1-to-25, to fulfill the criteria to remain on the NASDAQ exchange.
Earlier in August, YRC Worldwide completed the divestment of the majority of its YRC Logistics division to the private equity firm Austin Ventures. Gross proceeds from the deal were $38.7 million. Out of this, YRC Worldwide received the initial proceeds of $33.6 million in cash. Divestment of the Logistics unit is part of management’s strategy to improve the company’s sagging liquidity condition.
The company is facing major challenges, including sustaining liquidity, dilution of preferred stock, loss of customers and a weak LTL market. The company is making unrelenting efforts to deter total financial collapse. Despite prudent moves to manage liquidity, we believe YRC Worldwide must continue to consume cash for operations.
We maintain our long-term Neutral recommendation for YRC Worldwide. Currently, it is a short-term Zacks #3 Rank (Hold) stock.