425: Berry Global and Glatfelter Announce Merger to Create Specialty Materials Leader, Magnera

Berry Global and Glatfelter are merging their Health, Hygiene and Specialties Global Nonwovens and Films business to form Magnera, a global leader in specialty materials.

Summary

• Berry Global and Glatfelter announced plans to merge Berry's Health, Hygiene and Specialties Global Nonwovens and Films business (HHNF) with Glatfelter to create a new company named Magnera.
• Berry Global is expected to receive approximately $1 billion in net cash proceeds at closing.
• Berry shareholders will own approximately 90% of the combined company's common shares, while Glatfelter shareholders will own the remaining 10%.
• The combined company, Magnera, will have a pro forma adjusted EBITDA of $455 million based on the LTM period ending June 2024, with combined revenue of $3.5 billion.
• Magnera's capital structure will include a $350 million asset-based credit facility, a $1,585 million term loan B, and $500 million in rolled senior secured notes.
• The transaction is targeted to close no later than early November 2024, subject to customary closing conditions and regulatory approvals.
• Magnera aims to reduce its leverage to approximately 3.0x in the near term, focusing on debt repayment.

Sentiment

Score: 7

Explanation: The document presents a positive outlook on the merger, highlighting the strategic benefits, financial synergies, and growth opportunities for the combined company. However, it also acknowledges the risks and challenges associated with the transaction, resulting in a moderately positive sentiment score.

Positives

• The merger creates a differentiated industry leader serving attractive, growing markets.
• The combination brings together leading resin and fiber technologies, providing broader solutions and innovation opportunities.
• The combined company will have deepened relationships with leading brand owners.
• Magnera will have a well-invested, global footprint, positioned to serve customers across major continents.
• The company has a resilient raw material pass-through mechanism, protecting material margins.
• Magnera has a tenured and diversified customer base of leading global CPGs.
• The company has a world-class management team focused on value creation.

Negatives

• The transaction involves significant debt financing, with a pro forma secured and total net leverage of approximately 4.0x based on LTM PF Adj. EBITDA.
• The P&L is temporarily impacted by the lag between purchase of raw material and the sale to customers.
• The company will not be paying dividends or repurchasing shares in the near to medium term.

Risks

• The transaction is subject to customary closing conditions and regulatory approvals, which may delay or prevent the closing.
• The integration of the two businesses may be more difficult, time-consuming, or costly than expected.
• The company's actual results may vary from projections due to future events outside of its control.
• There are risks related to potential litigation brought in connection with the proposed transaction.
• The company faces risks related to financial community and rating agency perceptions.

Future Outlook

The combined company, Magnera, aims to become a global leader in the specialty materials industry, serving the world's largest brand owners across global end markets with favorable long-term growth dynamics, and plans to reduce its leverage to approximately 3.0x in the near term.

Management Comments

• Leading CPGs expect a return to volume-driven growth following a multi-quarter stretch of pushing pricing to drive top-line growth.

Industry Context

The merger aims to create a leading player in the specialty materials market, competing with other large players in the nonwovens and films industries, and capitalizing on growth trends in health, personal care, and infrastructure.

Comparison to Industry Standards

• The document references several competitors in the nonwovens and films market, including companies with sales ranging from $150 million to $3.6 billion.
• Magnera aims to be a full-suite provider, offering both nonwovens and films across various geographies, similar to larger players in the industry.
• The company's focus on innovation and sustainability aligns with industry trends towards more environmentally friendly and high-performance materials.

Management Changes

Stakeholder Impact

• Shareholders of Berry Global will own approximately 90% of the combined company, while Glatfelter shareholders will own approximately 10%.
• Customers will benefit from a broader product offering and enhanced innovation capabilities.
• Employees will be part of a larger, more diversified organization with global opportunities.

Next Steps

• Launch the Term Loan B in early September.
• Obtain customary closing conditions and regulatory approvals.
• Close the transaction targeted for early November 2024.
• Focus on deleveraging to approximately 3.0x in the near term.
• Conduct a portfolio review and rationalization post-close.

Key Dates