News: Analysis & Commentary: LABOR
THE TEAMSTERS: ROAD HAZARD FOR AN IPO
The Teamsters may clobber a Union Pacific spin-off
Union Pacific Corp. had a simple plan. Having lost $214 million in the six months ended in March because of problems stemming from its 1996 merger with Southern Pacific Rail Corp., the No.1 railroad needed cash. So UP decided to spin off Overnite Transportation Corp., its largest nonrail asset. On May 20, Union Pacific filed a prospectus with the Securities & Exchange Commission for an initial public offering that says it hopes to sell the nation's No.6 trucker for $550 million.
But there's a roadblock: the Teamsters. Over the past four years, the union has recruited 43% of Overnite's 8,400 drivers. Still, the company--which disputes the validity of some of the elections--is refusing to sign the Teamsters' National Master Freight Agreement, the pact covering major unionized trucking companies.
With the IPO pending, the Teamsters seized the opportunity to get management's attention. Members launched a series of disruptive strikes on June 22, citing local issues such as overtime. But the real aim is to get a national contract and ensure that Overnite isn't spun off with crippling debt. On July 8, the Teamsters authorized a yet-to-be-scheduled nationwide walkout and an informational campaign on the IPO for Wall Street.
Union leaders have not been the only ones to express alarm over the prospect of a company in hock. Back when Union Pacific was drawing up the proposal for the IPO, the railroad's executives ran into opposition from the management of the trucking unit over plans to saddle Overnite with as much as $150 million in debt, company insiders say. For now, the filing for the initial public offering has blanks where debt numbers will appear when the company starts its road show in mid-July. Both Union Pacific and Overnite declined to comment.
The Teamsters campaign puts Union Pacific and Overnite in a bind. If Overnite signs a contract, labor costs could jump 20%, and more workers would join the union. That could scare investors and pare the IPO price, insiders at Overnite say.RIGHT PRICE? Yet the labor disruptions are having the same effect. Analysts say investors are skittish about buying a company in such turmoil. "It will be difficult for UP to get an IPO done without some resolution of the labor issues," says Thano Hasiotis, a trucking analyst at Salomon Smith Barney. Other experts say UP can't get $550 million and are already predicting it will be forced to reprice the IPO.
As for UP, it can't get Overnite off its books fast enough. Not that the unit is doing badly. Leo H. Suggs, Overnite's CEO since April, 1996, managed to bring it back into the black in 1997 after two years of heavy losses. However, he can't shake the Teamsters. The National Labor Relations Board has gone to court to force Overnite to the bargaining table in more than a dozen cities.
Teamsters officials say that they would consider giving Overnite a break on work rules or other items if the company signs the master freight pact. The union has done similar deals with other struggling truckers. So far, however, Overnite has shown no interest. That could change if drivers are still striking when UP starts to pitch its IPO. Either that, or UP may have to rethink its plans.By Aaron Bernstein in Washington