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Most dysfunctional company in American history

Yellow's bankruptcy battle kicks off

Happy Sunday. Let’s get started:

Trucking business Yellow Corporation filed for Chapter 11 last week, closing out a 100-year run that saw it climb to the third-largest less-than-truckload (LTL) freight carrier in the United States.

But, Management wants you to know it’s not their fault.

How’d We Get Here?

According to Yellow executives, the International Brotherhood of Teamsters “knowingly and intentionally triggered a death spiral” for the business.

Yellow had more than 30,000 employees, of which roughly 20,000 were unionized. Yellow maintains that this put the business at a distinct disadvantage vs. competing non-union carriers responsible for nearly 80% of LTL freight volume.

In early 2022, with its financial position deteriorating, Yellow drew up a turnaround strategy coined “One Yellow.” Broadly, the roadmap contemplated integration of various trucking brands, terminal consolidation, and permission for employees to both drive and unload.

By late summer, Phase One of the two-part plan was judged a success and provided some confidence that Yellow could turn things around. That confidence proved short-lived.

The Union held veto power over Phase Two and saw a chance to leverage it for wage increases ahead of the normal contracting period. Management refused, sparking a year-long public battle between the two sides.

Teamsters boss O'Brien likely not surprised by bankruptcy.

No love lost between Union boss O’Brien and Yellow CEO Darren Hawkins

The Final Days

By late July, still locked in negotiations, Yellow’s cash balance was running on empty. In an attempt to preserve liquidity, the Company opted to defer $50 million of scheduled contributions to its employee health and pension fund.

The Union responded with a 72-hour strike notice, hammering the final nail in the coffin.

On the Monday the strike was announced, Yellow’s individual shipments totaled approximately 40,000. The next day, Yellow’s shipments declined to approximately 30,000. By Wednesday: approximately 20,000. By Thursday: approximately 10,000. By Friday: near zero.

Per Petition

Shortly thereafter, Yellow ceased operations and turned its focus to bankruptcy preparation (and the shifting of blame to the Teamsters).

Teamsters Boss O'Brien tweets at "Do Nothing Darrn," Yellow's CEO

The Other Side of the Story

Was the Union really at fault, or was Yellow just a “deadbeat company,” as O’Brien claimed?

While Yellow’s management and advisors have waged an impressive campaign to pin blame on the Union, the road to insolvency certainly did not start with the Teamsters.

Jumping back to the early 2000s, the business completed a series of acquisitions to consolidate rival LTL carriers. The moves achieved scale, but saddled Yellow with a debt burden that followed the business for the next twenty years.

The financial crisis nearly brought the whole thing crashing down, but for a last-minute debt-for-equity swap that bought time (though not without wiping out 94% of former shareholders).

Through the early 2010s, poor integrations and failed restructurings continued to plague the business. Divestitures and a second debt-for-equity swap bought a little more time, but couldn’t solve a growing fundamental challenge:

Years of neglecting to fund fleet and terminal upgrades led to higher operating costs and service inadequacies compared to peers, fueling a cycle of lower yields and continual underinvestment in the network. Its industry-lagging service scores — dead last among national providers — forced it to become a low-cost provider. Its inability to appropriately charge for the freight it hauled left it barely covering operating expenses.


Treasury Loan

If your business is woefully behind on required capital expenditures, and you see a free pile of cash, what would you do? If you’re Yellow, you grab as much as you possibly can.

That cash pile was the March 2020 CARES Act pandemic relief bill, which included an allotment of funding for businesses critical to national security. While you may not immediately think a discount trucking business would fit that description, Yellow positioned itself as a vital provider of logistics services to the Defense Department.

The business came away with a $700 million loan, despite opposition from senior Pentagon staffers thanks to a pending Justice Department lawsuit alleging the company had overcharged the federal government and then lied about it.

Defense Secretary Mark Esper overruled funding objections, reportedly following a private phone call with then-Treasury Secretary Steve Mnuchin. Whether Esper was following Administration orders is unclear, though Mnuchin went on to personally blame Esper in the subsequent congressional investigation over the legitimacy of Yellow’s deal (which did not appear related to “losses incurred as a result of the coronavirus,” as the CARES Act mandated).

Either way, Yellow made the most of it.

While we had our hand in the cookie jar we thought we would try to get a little ‘catch up’ capex while we were at it.

Daniel Olivier, Yellow CFO, on his use of CARES Act funds

Apollo Thought They Secured The Bag

Back to the bankruptcy — by late last week, nearly everyone involved in the Yellow debacle looked set to come out a loser. The exception: Apollo.

The firm was nearing a deal to provide $643 million of debtor-in-possession financing — $143 million of new money, plus a “roll-up” of Apollo’s outstanding 2019 term loan, which would have placed Apollo’s entire claim squarely on top of all other creditors, including, of course, the Treasury Department’s $700 million loan.

Even better (for Apollo), their DIP facility was set to come in at a 17% interest rate with financing fees of $32 million, or nearly 23% of the new money commitment.

But, those terms may have been a little too rich, and Yellow made a last-minute decision to look for alternate financing sources. As of Friday, new proposals had emerged from MFN Partners, the hedge fund that mysteriously bought up a 40% equity stake as Yellow careened toward bankruptcy, and Estes Express Lines, a rival LTL freight operator.

Where Do We Go From Here?

The immediate next step: a hearing on Tuesday to determine the outcome of the DIP financing.

Longer-term, prepare for a volatile process as stakeholders battle it out. Of course, you’d expect nothing less from the bankruptcy of “the most dysfunctional company in American history,” at least according to the Teamsters.

Today’s note in partnership with Saber Trade…

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NYSE: APOApollo Global Management is front and center in Yellow’s bankruptcy proceedings.

NYSE: TPRTapestry made an $8.5 billion move for the owner of Michael Kors.

NYSE: NVONovo Nordisk laid out $1.1 billion to pick up a new class of weight loss therapeutics, complementing its GLP-1 assets Wegovy and Ozempic.

Please note that this is not an investment recommendation and Transacted does not provide investment advice. Transacted received a flat fee for this partnered placement and does not receive commissions on any securities purchased.

DEALS, DEALS, DEALS | Last week's notable transactions

1. WeWork might not be working for much longer.

• On Tuesday, WeWork, a provider of co-working spaces, disclosed that "substantial doubt exists about [its] ability to continue as a going concern.”

• That’s an unpleasant turn for a business once privately valued at $47 billion, and then taken public via SPAC in October 2021 at a $9 billion valuation.

• Driving the downfall: pricey office leases signed at the peak of the real estate market have pressured margins and backed the company into a corner.

• Good thing founder and former CEO Adam Neumann already secured a $350 million raise for his next venture focused on residential real estate.

2. Coach owner looks to revitalize the Michael Kors brand.

Tapestry, home to luxury brands like Coach, agreed to acquire Michael Kors owner Capri for $8.5 billion.

• The Michael Kors business has posted steep revenue declines over the past year, feeling the squeeze as consumers cool their spending.

• Tapestry wants to pull back from the current focus on wholesale department store distribution, targeting a shift to direct-to-consumer sales — the same playbook they successfully rolled out for Coach.

The rest of the deal sheet…

PSP Investments and Ontario Teachers' Pension Plan are seeking bids for renewable energy project firm Cubico Sustainable Investments, which could be worth more than $6 billion.

Campbell Soup Co. (NYSE: CPB) agreed to acquire Sovos Brands (Nasdaq: SOVO), a food and beverage company most known for its Rao's Homemade pasta brand, for $2.7 billion. It’s a full exit for Advent International, which took Sovos public in 2021 and still holds a 44% stake.

Clayton Dubilier & Rice agreed to buy printing and packaging business Veritiv (YSE: VRTV) for approximately $2.3 billion, or a 20% premium to prior close.

Bain Capital, CVC, and DCP Capital are among the group of bidders advancing to the second round of the process for Vinda, a $2.4 billion market cap facial tissue maker.

Cinven is prepping an exit for pet food manufacturer Partner in Pet Food, with BofA and Goldman Sachs to lead a sell-side process that could bring in more than €2 billion.

Lone Star Funds and Platinum Equity are among the bidders for DuPont's resins unit, which could be worth around $2 billion.

KKR agreed to buy book publisher Simon & Schuster from Paramount Global (Nasdaq: PARA) for $1.6 billion.

TPG agreed to buy Australian funeral home business InvoCare (ASX: IVC) for A$1.8 billion.

Berry Global (NYSE: BERY) is exploring a sale of its nonwoven fabrics division, which could be worth nearly $2 billion.

Novo Nordisk (NYSE: NVO) agreed to acquire Inversago Pharma, a developer of therapeutics for metabolic disorders, for $1.1 billion in cash.

Symphony Technology Group agreed to purchase video editing software developer Avid Technology (Nasdaq: AVID) for $1.4 billion.

Body Art Alliance, a Trivest-backed tattoo supplies and cosmetics vendor, brought in Jefferies to explore a sale that could be worth nearly $1 billion (including debt).

Madison Dearborn Partners hired Evercore to lead the exit of portfolio company Intermedia Cloud Communications, which could fetch more than $1 billion.

Advent International acquired Australian fashion brand Zimmermann from Style Capital for roughly $1 billion.

KKR launched a tender offer for German space-tech company OHB at a €1 billion valuation.

Gordon Brothers is considering a takeover offer for distressed British retailer Wilko, per Sky News.

GTCR agreed to buy ADT's (NYSE: ADT) commercial security unit for $1.6 billion.

Crestline Investors finalized a deal to sell German renewables developer NeXtWind Capital for $750 million to Sandbrook Capital, PSP Investments, and Investment Management Corp. of Ontario.

Kohlberg & Co. agreed to acquire contract research organization Worldwide Clinical Trials from The Jordan Co.

Roper Technologies (Nasdaq: ROP) agreed to buy healthcare and education ERM developer Syntellis from Madison Dearborn Partners and Thoma Bravo.

Telephone and Data Systems (NYSE: TDS) announced it’s evaluating strategic options for majority-owned U.S. Cellular (Nasdaq: USM).

TA Associates and Warburg Pincus acquired Epassi Group, a European employee benefits provider, from Bregal Milestone.

EQT agreed to sell hand sanitizer manufacturer Schuelke & Mayr to Athos Service.

Partners Group has brought on Morgan Stanley to lead the exit of $80 million EBITDA Australian childcare business Guardian Early Learning.

Novacap bought ad-tech business Cadent for $600 million from Lee Equity Partners.

Check Point Software (Nasdaq: CHKP) reached an agreement to acquire Perimeter 81, an Israeli network security company, for $490 million.


DKV Mobility, a German fleet services firm owned by CVC, is picking up a previously shelved IPO that could target a €3.5 billion valuation, per Bloomberg.

CVC is also evaluating a 2024 IPO for perfume maker Douglas, which could be worth nearly €7 billion, per Bloomberg.

Edsec Solar, backed by Blackstone, engaged JPMorgan and Morgan Stanley to prep a U.S. filing for an IPO that could value the business at north of $5 billion.

Lulu, a Middle-East-based supermarket operator, is progressing a $2.7 billion debt refinancing to prep for a potential near-term IPO, per Bloomberg.

Barca Media, the media division of Spanish soccer club FC Barcelona, agreed to go public at an implied $1 billion valuation via Mountain & Co. I Acquisition Corp. (Nasdaq: MCAA).

Adlai Nortye, an immuno-oncology-focused biotech, set IPO terms that could result in an $896 million market value, should it price in the middle of the range.

American Gene Technologies, an HIV-focused gene therapy biotech, agreed to go public at an implied $500 million pre-money valuation via 10X Capital Venture Acquisition III (NYSE: VCBX).

VENTURE & GROWTH | The early stages

ADARx Pharmaceuticals, a developer of RNA therapeutics, raised $200 million in Series C funding. Bain Capital Life Sciences and TCGX co-led, with participation from Blackrock, Commodore Capital, Cormorant Asset Management, HB Healthcare Investments, Invus, Marshall Wace, Redmile Group, T. Rowe Price, Venrock, Vivo Capital and insiders Ascenta Capital, Lilly Asia Ventures, OrbiMed, and SR One Capital Management.

Neuralink, Elon Musk's brain implant business, raised $280 million led by Founders Fund.

Archer Aviation (NYSE: ACHR) raised $215 million from Stellantis, Boeing, United Airlines, and ARK Invest.

Verdagy, a developer of industrial electrolyzer technology, raised $73 million in Series B funding. Temasek and Shell Ventures co-led, with participation from Bidra Innovation Ventures, BlueScope, Galp, Samsung Venture Investment, Toppan Ventures, Tupras Ventures, Yara Growth Ventures, and Zeon Ventures.

Georgiamune, a biotech targeting oncology and autoimmune diseases, raised $75 million in Series A funding led by General Catalyst and the Parker Institute, plus participation from Mubadala.

Halodoc, an Indonesian telehealth startup, raised $100 million in Series D funding. Astra Digital led, with participation from Openspace and Novo Holdings.

Resilience, a cybersecurity platform, raised $100 million in Series D funding. Intact Ventures led, with participation from Lightspeed Venture Partners, General Catalyst, and Founders Fund.

Tenstorrent, an AI chip developer, raised $100 million in convertible financing. Hyundai Motor Group and Samsung Catalyst Fund co-led, with participation from Fidelity, Eclipse Ventures, Epiq Capital, and Maverick Capital.

Alltrna, a tRNA-focused biotech, raised $109 million in Series B funding from Flagship Pioneering and others.

Weights & Biases, a machine learning startup, raised $50 million in new funding. Daniel Gross and Nat Friedman co-led, with participation from existing backers Coatue, Insight Partners, Felicis, BOND, and BloombergBeta.

Persefoni, a carbon accounting firm, raised $50 million in Series C1 funding. TPG Rise led, with participation from Clearvision Ventures, NGP, Prelude Ventures, Parkway Ventures, The Rice Investment Group, Bain & Co., EDF, Alumni Ventures and ENEOS Innovation Partners.

Fizz, a university-focused social media platform, raised $25 million in Series B funding. Owl Ventures led, with participation from NEA.

FUNDRAISING | Buyout, growth, credit & venture

Oaktree Capital Management is targeting more than $18 billion for its 12th private credit fund.

Blackstone raised $7.1 billion for its third energy transition credit fund.

TPG is raising $4 billion for its sixth growth equity fund.

BlackRock is targeting NZ$2 billion for a New Zealand-focused climate infrastructure fund.

Revelstoke raised $1.7 billion for its third middle market buyout fund.

Willowridge Partners raised $900 million for its ninth secondaries fund.

Ribbit Capital raised $800 million for its 10th fintech-focused fund.

Access Holdings raised $525 million for its second lower middle market fund.

Eniac Ventures is raising up to $150 million for its sixth fund.

Commerce Ventures is targeting up to $150 million for its fifth fund.

THE READOUT | Worth your time

1. Nobody likes ‘BJ D-Sol.’

Goldman Sachs CEO David Solomon has solidified his reputation as an incredibly unpleasant person, rapidly losing support within the firm.

• His failed pivot to consumer banking may actually be one of his least problematic blunders — he seems intent on digging his own grave, with boasts to colleagues about sexual encounters, embarrassingly frequent public temper tantrums, and a Hamilton College networking event in which he sent students home in tears. (Check it out: NYMag)

2. Even the most staid corporate law firms are positioning themselves for the new private equity-led M&A scene.

Cravath, Swaine & Moore is now enticing star private equity and private credit attorneys with big pay packages, eschewing its rigid seniority-based heritage. (Check it out: Semafor)

3. ‘Bermuda off-balance sheet financial engineering’ sounds like a precursor to an Enron-style blow-up.

• But, for Apollo Global Management, its proven a stable source of cheap equity that’s been welcomed by shareholders.

• The Financial Times’ Sujeet Indap explores Apollo’s acquisition of Athene and what it means for the business. (Check it out: FT)

Thanks for reading, catch you guys next week. Drop a line with any feedback or scoops (just reply here; kept anonymous).

— Sam

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