Leaders of local unions representing 7,500 workers at less-than-truckload (LTL) carrier ABF Freight System Inc. today approved a tentative five-year labor agreement, paving the way for a June vote by a rank and file whose decision could determine the future of ABF and parent Arkansas Best Corp.
In a statement released late today, the Teamsters union said leaders from about 160 locals unanimously endorsed the contract, which was approved May 3 by members of the international union. The tentative agreement calls for a 7-percent wage cut, which the union said would be fully recouped by the contract's fifth year. The Teamsters said they defeated attempts by the company to negotiate "major cuts" to health, welfare, and pension benefits.
"Nobody ever wants to see a pay cut, but in light of the company's struggles and our desire to see the company survive, something needed to be done," said Gordon Sweeton, who headed the Teamster group negotiating the ABF contract, in the statement. Sweeton said the members' top priority all along was protecting their benefits.
The union said that ballots would be mailed on or about June 3 to ABF's rank and file. The ballots will be counted on or about June 27.
In 2010, ABF's rank and file rejected a contract proposal that would have brought ABF's labor costs in line with those of YRC, whose own Teamster workers had agreed to a 15-percent wage cut and an 18-month suspension of pension contributions to keep the ailing carrier afloat. The rank and file's action defied Teamster leadership, which had approved the deal with ABF.
ABF has said the tentative agreement would maintain its workers' status as the best paid in the LTL sector. Arkansas Best and ABF have repeatedly said ABF's labor costs, the highest in the LTL business, must be reduced for the carrier to stay competitive.
Today's action by the Teamster locals comes as Fort Smith, Ark.-based Arkansas Best told employees that failure to ratify the agreement could pave the way for a purchase by rival YRC Worldwide Inc. and could spell a "very uncertain" future for the company and its workers.
In an internal communiquÃ©, the date of which is unknown, Arkansas Best said YRC's buyout overtures are "serious and not some sort of 'scare tactic'—we have no ability to control what YRC and its board of directors will or won't do in the future regarding our company."
In a message aimed at the union workers, the company said that "if you vote yes and ratify the agreement ... then ABF can continue on with our own plan to improve profitability, take back market share, [and] grow and protect your jobs and retirement benefits."
By contrast, a contract rejection means the "likelihood that YRC would be able to consummate a deal grows higher," the document said.
The document said Arkansas Best, which has lost $265 million since 2009, is in a "weak position" to fend off YRC's potential advances. No company executive or group of executives holds enough outstanding shares to thwart a takeover bid, with the board and management combined owning only between 4.5 percent and 10 percent of the company's shares, according to the document.
Kathy Fieweger, an ABF spokeswoman, said the document was designed to help managers respond to employees' questions and concerns about YRC's strategy, given that company's own financial difficulties over the past four to five years.
In late March, YRC CEO James L. Welch met with Arkansas Best President and CEO Judy McReynolds to discuss the possibility of Overland Park, Kan.-based YRC's buying all of Arkansas Best, which would include ABF and expedited transport firm Panther Expedited Services, among other assets.
On April 1, McReynolds told Welch a transaction was inappropriate at that time.
The companies have not talked since then. Welch, in a memo distributed late last week after news of the talks and possible transaction was reported May 8 on DC Velocity's website, said discussions between the companies are essentially over.
"The entire matter was opened and closed in 10 days, and that was it, end of story," Welch wrote.
A well-placed source said Teamster General President James P. Hoffa; Tyson Johnson, head of the union's freight division; and Sweeton were unaware of YRC's buyout overtures until the end of April, long after the two CEOs had met. Teamster leaders have surmised over the past month that Arkansas Best management would use the developments as leverage to convince the rank and file to ratify the compact. The company might play on workers' fears that, without a collective bargaining agreement in place, the rank and file would be co-opted under a less-generous YRC labor agreement if an acquisition occurred, according to the source. The Teamsters represent about 25,000 YRC workers.
In trading today on the NASDAQ, Arkansas Best stock closed at $17.74 a share, up 36 cents a share on the day.
YRC stock closed at $22.06 a share, up $2.87 a share. The stock price is slightly below its 52-week high of $22.15 a share.
Based on revenue, the two companies combined controlled about 20 percent of the $32 billion LTL market in 2012, according to data from SJ Consulting, a Pittsburgh-based consultancy.