Yellow | YRC will combine 50 to 60 terminals per quarter

[msixteen]

Other Miscellaneous Factors in the Yellow and Roadway Merger: 6 Key Questions
1. Why now? Management believes that the weak economy has "created enough capacity in the networks to integrate
without interrupting customers' supply chains." On paper this sounds great as fewer service disruptions are likely
when the velocity of freight and the network are slow; however, as stated on page 1 we are also concerned that the
under-utilization of networks at competitors is a large risk and could make revenue retention more challenging. While
YRCW is likely to shed less desirable freight in selected locations, the aggressiveness of competitors is a key factor
to monitor.
2. Are systems ready for this? While YELL and ROAD have consolidated back-office personnel and IT, operational
IT is not integrated and is unlikely to be completed until late 2009. While the Company's SisNet technology allows
YRCW to look into the networks of both YELL and ROAD, we are not totally comfortable with its capabilities to
manage linehaul, dock, P&D, overall routing, etc. With costs being eliminated, but also being moved around (think
about the movement of equipment and personnel to new terminals), we believe that it may be difficult to have an
accurate activity-based costing system.
3. What about selling terminals? Our sources tell us that there are a significant number of LTL terminals already for
sale in the marketplace. While long-term demand for most terminals should be solid, especially due to many
communities having a "NIMBY" attitude (not in my backyard regarding new truck terminals and overall industrial
development), YRCW may be initially trying to sell many terminals during a period with a glut of properties.
4. How quickly will 250 (up to 300 is possible) facilities be eliminated? Initially, the plan is to eliminate 50 to 60
terminals per quarter starting with co-habitated centers (sites that already house YELL and ROAD operations and
personnel, albeit separately up until now). From there the integration will shift to non co-habitated sites.
5. Is this integration "mission impossible?" As stated early on, we view it as a high risk but potentially high reward
strategy. Unlike 3 past LTL integrations of two equal-sized carriers (Transcon and P.I.E. in 1990; Carolina and ABFS
in 1995-1996; and ANR/Advance in 1998), YRCW is starting with more of a running start. Both companies have
been together nearly 5 years and while neither is very profitable, neither is sick, either. In the above 3 mergers there
was at least one sick carrier in each situation and integration involved everything all at once (back office, terminals,
operations and IT). Obviously, that is not the case at YELL and ROAD. However, depreciation expense could remain
high as excess equipment is slow to be sold, while staffing levels could remain high in order to protect service during
the initial operating changes. While we would not characterize the YELL and ROAD integration as beginning with a
"running start," they're not starting flat-footed either. And YRCW has been eliminating some terminals, having gone
from 684 at the end of 2005 to 586 at the end of 2007, a reduction of 98 facilities.
6. How thrilled are the Teamsters about this? Suffice to say, individual workers and leadership are less than thrilled;
however, they're not ignorant either of what has been happening to YRCW or long-haul LTL freight. The key to
watch is service and whether cargo claims and on-time service deteriorates. At a minimum, we believe management
will not need to take Teamster cooperation for granted.:TR10driving03:

 

[little indian 1]

Thank you !! finally a post that makes sense

 

[bubbadog121]

Good post

Good informational post

 

[g-man]

makes sense

thanks for the info msixteen, very informative....all we can do is hope for the best and hang on tight........the g-man:red_bandana:

 

[bubbadog121]

From the same Investment Report

This is from the same investment report that msixteen had quoted previously



Downgrading Until High Risk, High Reward

Strategy Shows Signs of a Payoff

INVESTMENT CONCLUSION:

We are downgrading the stock of YRC Worldwide to Equal-Weight

from Overweight and are lowering our price target to $12 from $28.

YRCW is embarking upon a fascinating strategy that near term is

high risk, but offers the potential to substantially lower its fixed costs if

its merger of Yellow and Roadway ("National") is successful.

However, that payoff is likely a year away, meaning that the

integration risk needs to be more heavily weighted than the reward,

especially in a deteriorating freight market.

KEY POINTS:

• The primary risk to YRCW from shrinking the number of National

terminals/service centers from 586 (as of 12-31-07) to

approximately 350 is service disruptions. If significant enough, then

YRCW could experience noticeable revenue losses and customer

defections, perhaps on the order of 15% to 20%.

• If YRCW does nothing though, its prospects would also be dim with

National revenues likely to decline 7% to 10% the next year simply

due to the weak economy, secular decay in long-haul deliveries and

substitution pressure from intermodal.

• To be fair, it's not certain YRCW will lose 15% to 20% of its

revenues, but history suggests it will be challenging.

• The service and potential revenue loss risk is heightened by the

weak overall environment. With every carrier operating well below

capacity, we believe that many competitors will be eager to capture

revenue from any shippers nervous about the integration process.

• We recently spoke to 21 shippers about the pending YELL/ROAD

merger. To our surprise 11 of the 21 were not concerned about

service disruptions whatsoever with each stating that "it is about

time the two companies got together." We would have expected the

vast majority to be moderately or very concerned.

• Unlike some, we are open to the possibility that down the road

YRCW may find itself with a much more competitive offering. Lower

overhead, possibly 15% to 25% fewer employees (our est.), more

direct routes, higher lane density and load factors and reduced

miles (a lot less fuel) are possible benefits down the road.

• Page 2 discusses 6 questions and factors to consider. The tables at

left summarize our EPS estimate changes.

• This Bulletin also discusses the current downturn, areas that are

manifesting news signs of a slowdown and what needs to happen

with capacity (esp. compared to the last two periods of

consolidation) in order to stabilize results.