Executives of Yellow Corp. have accused leaders of the International Brotherhood of Teamsters of breaching their contract with the less-than-truckload carrier, sabotaging its business plan, and putting it at risk of needing to liquidate its assets.
In a lawsuit filed in U.S. District Court in Kansas, Yellow alleges that Teamsters are unlawfully blocking the company's efforts to complete its One Yellow restructuring plan to regionalize and streamline its operations and integrate its four legacy brands. Per a collective bargaining agreement, Yellow says, Teamsters leaders—the company specifically calls out General President Sean O'Brien's self-professed "militant" approach—must cooperate on One Yellow efforts (on employee seniority questions, among other things) but have refused to consistently work with the company over the past eight months after engaging on the first phase of the restructuring.
"For his own inexplicable reasons, political or otherwise—reasons that could not possibly be in the interests of Union members, let alone the country—Mr. O'Brien has made clear that he wants to bring about Yellow's demise," the company's complaint in District Court states in part. "Most recently, he has gone so far as to tweet a picture of a headstone in a cemetery with 'Yellow' on it."
O'Brien's tweet, posted June 24, called on Yellow CEO Darren Hawkins to resign and said Teamsters members "are done making bad investments." A Teamsters statement issued on the heels of Yellow's announcement called the company's allegations baseless and said the union has adhered to the terms of its contract.
Personally responding to Yellow's lawsuit, O'Brien—who also is battling UPS Inc. management over a new contract—on June 27 again called out Hawkins' management via Twitter and said company executives "can file as many lawsuits as they want. They are the sole reason for their mess."
Yellow seeking third restructure in 15 years
The Yellow lawsuit states that labor representatives' resistance to moving ahead with One Yellow has come mainly from a broad demand to lift wages under the parties' contract, which runs until next March. After resisting that call for months, Yellow leaders late last month offered to increase wage and mileage rates with the condition that the company needs to restructure or refinance existing debt deals or secure new financing before it can begin paying those higher rates. Union leaders rejected the offer and told members the plan was "a non-starter."
Yellow, ranked No. 6 on the FleetOwner 500: Top For-Hire Fleets of 2023, has twice had to reorganize its operations in the past 15 years. The company is asking a jury to award it $137 million in damages executives say they've already incurred (as lost adjusted EBITDA) due to the delay of One Yellow. The company also asks for "at least $1.5 billion for the loss in enterprise value that Yellow is sustaining and will sustain as a result of the Union's breaches."
At risk, Hawkins and his team say, are about 30,000 total jobs—22,000 of them held by Teamsters—because Yellow would be forced to sell its assets and shut down if One Yellow isn't completed. In a note published the day before Hawkins and his team went public with their lawsuit, Stifel analyst Bruce Chan also painted a dramatic picture, calling Yellow's situation "precarious" because the company is nearing a big debt deadline.
"Time is of the essence for Yellow because the change of operations would help to mitigate costs and cash burn, but also because the company needs to refinance almost $1.5 [billion] in debt coming due next year before a potential covenant violation, which we estimate could come as early as next quarter," Chan and colleagues Matthew Milask and Andrew Cox wrote in a report to clients. "The company has survived significant financial and operational overhauls in its tumultuous past, but without the support of the Teamsters, it's difficult for us to see a path forward."
Two notable changes from Yellow's past restructurings, according to the Stifel team:
- Lenders might be more open than otherwise to liquidation because the strength of the industrial real estate market will let them recover more from the company's assets.
- A government bailout is unlikely because Yellow received a $700 million CARES Act loan in 2020. The probability of a bankruptcy filing, they added, is closer to 50% than to zero.
"The only clear support for Yellow this time around may be its customers, who would see prices rise significantly if a major player were to exit the market," the analysts wrote.
Shares of Yellow (Ticker: YELL) fell more than 20% to below $1 on the news, adding to year-to-date losses that now top 60% and have left the Nashville-based company with a market capitalization of just $52 million. By comparison, shares of some notable carriers that have historically productive relationships with labor unions rose: ArcBest Corp. stock (Ticker: ARCB) climbed more than 9% while shares of Old Dominion Freight Line Inc. (Ticker: ODFL) and TFI International Inc. (Ticker: TFII) both rose more than 7%.
