YRC Worldwide Inc.’s possible revival of a spurned bid to acquire trucker Arkansas Best Corp. is being shaped by lessons from its brush with bankruptcy because of a merger spree, Chief Executive Officer James Welch said.
“We’ve made a lot of progress over the last 12 to 13 months,” Welch said Thursday in an interview. “We’re in a position of trying to move forward versus just being defensive all the time.”
YRC’s offer was disclosed Thursday by Arkansas Best, which said its board in April turned down a request to begin talks to sell ABF Freight System Inc., its largest unit. It declined to reveal terms proposed by YRC, which has Summit County operations and built itself into the biggest U.S. trucker with more than $2 billion in acquisitions last decade.
Pursuing Arkansas Best would shift YRC’s focus back toward expansion after negotiating credit agreements to avoid bankruptcy in 2011 and 2009. Welch was named CEO in July 2011 after the company’s purchases left it in debt, unprofitable and losing customers to Con-Way Inc. and FedEx Corp.
“The economy is not great but not bad, valuations are fair and we see enough synergies coming out of a potential acquisition that it gives us confidence we can finance this transaction if it occurred,” he said.
Welch acknowledged that some of YRC’s acquisitions in the early 2000s were “ill-timed and ill-conceived.” The company is “much stronger” financially now, he said. He declined to disclose details of the offer for Arkansas Best.
Arkansas Best hasn’t had any contact with YRC since declining the overture, said Kathy Fieweger, vice president for marketing and communications at the Fort Smith, Ark.-based company. She declined to discuss specifics of the offer.
The trucker is focused on “labor negotiations as well as other strategic and operational initiatives” that make it inappropriate to consider a YRC offer at this time, the company said in a U.S. regulatory filing.
YRC shares increased 4.3 percent to $14.67 Friday. Arkansas Best rose 0.7 percent to $16.62, after climbing 9 percent Thursday. The company has led advances this year among the nine members of the Standard & Poor’s Supercomposite Trucking Index, with a total return of 74 percent compared with 18 percent for the group. The index does not include YRC.
Analysts including Art Hatfield of Raymond James & Associates Inc. questioned whether YRC’s operations and balance sheet have improved enough to consider an acquisition.
The Overland Park, Kan.-based trucker has reported six straight annual losses and held long-term debt of $1.3 billion at the end of the first quarter, when it recorded a $24.5 million net loss.
YRC’s changes “may not warrant taking on a significant acquisition yet,” particularly given a 59 percent jump in Arkansas Best shares since it announced a tentative deal with the Teamsters on May 3, Jason Seidl, a Cowen Securities LLC analyst, said in a report.
YRC is “assessing its position” on whether to approach Arkansas Best again, Welch said. The company isn’t interested in making a hostile bid, he said.
YRC’s freight operation has 290 facilities across the U.S. and moves 45,000 shipments a day, carrying goods from multiple shippers. ABF Freight has about 275 terminals over mostly the same territory, with about 18,000 daily shipments, Welch said.
YRC “had a tough time managing the network overlap” when it bought Akron-based Roadway Corp. in 2003, and a similar issue could arise with an Arkansas Best purchase, said Seidl, who has a hold rating on Arkansas Best and YRC. Hatfield rates YRC underperform and Arkansas Best market perform.