8-K: Berry Global Subsidiary Announces $500 Million Senior Secured Notes Offering to Fund Merger with Glatfelter

Berry Global Group, Inc. has announced a $500 million senior secured notes offering by its subsidiary to finance a portion of the cash distribution related to the merger of its Health, Hygiene and Specialties business with Glatfelter Corporation.

Summary

• Berry Global Group, Inc. is offering $500 million in senior secured notes due in 2031 through its subsidiary, Treasure Escrow Corporation.
• The proceeds will fund part of a cash distribution to Berry Global, Inc. related to the merger of Berry's Health, Hygiene and Specialties business with Glatfelter Corporation.
• The merger will result in a new company named Magnera Corporation.
• The notes will be secured and are being offered to qualified institutional buyers and non-U.S. investors.
• Glatfelter's existing 4.75% Senior Notes due 2029 will also be secured equally with Magnera's new debt.
• The issuance of these notes replaces a similar amount of debt previously planned under Spinco's new credit facilities.
• Magnera is expected to have pro forma revenue of approximately $3.5 billion and pro forma Adjusted EBITDA of approximately $455 million based on combined results for the last twelve months period ended June 29, 2024, inclusive of synergies.
• Magnera expects run-rate cost synergies of $55 million and combined pro forma adjustments of $12 million to be realized by the end of the third full year after the completion of the Transactions.

Sentiment

Score: 7

Explanation: The document is generally positive, highlighting the strategic benefits of the merger and the expected financial improvements. However, it also acknowledges risks and uncertainties, which tempers the overall sentiment.

Positives

• The merger creates a leading global competitor in the specialty materials industry.
• The combined company will have a highly complementary product portfolio.
• Magnera will have significant geographic diversification with 46 manufacturing facilities.
• The merger is expected to result in $55 million in annual cost synergies by the end of the third full year.
• The transaction is structured as a tax-efficient Reverse Morris Trust.
• Magnera is expected to have a pro forma net leverage of 4.0x, on a pro forma Adjusted EBITDA basis including expected synergies.

Negatives

• The offering is subject to market and other conditions.
• The notes have not been registered under the Securities Act and may not be offered or sold in the U.S. without registration or exemption.
• There is no guarantee that the expected synergies will be realized on the anticipated timeline or at all.
• The combined company will be required to abide by certain restrictions to preserve the tax-free treatment of the transaction.

Risks

• The transaction could be terminated due to various events or changes.
• Glatfelter shareholders may not approve the transaction.
• Necessary regulatory approvals may not be obtained or may be delayed.
• The anticipated tax treatment of the transaction may not be obtained.
• There are risks related to potential litigation.
• The integration of the combined company may be more difficult, time-consuming, or costly than expected.
• The offering of the notes may not be on advantageous terms.
• The transaction could disrupt management time from ongoing business operations.
• The combined company may fail to realize the expected benefits of the transaction.
• The combined company may be unable to replace services previously provided by Berry on favorable terms.

Future Outlook

The document includes forward-looking statements regarding the expected timing, completion, and effects of the proposed transaction, including the offering and issuance of the notes, and the future performance of the combined company, Magnera. These statements are subject to various risks and uncertainties.

Management Comments

• Curtis (Curt) L. Begle is the CEO designee and the current President of the Health, Hygiene & Specialties Division at Berry.
• James M. Till will serve as Executive Vice President, Chief Financial Officer, and Treasurer of Magnera.
• Tarun Manroa will serve as Executive Vice President and Chief Operating Officer of Magnera.
• The management teams extensive and proven track record of success within the sector is expected to serve to further Magneras position as a global leader in the nonwovens and specialty materials industry.

Industry Context

This announcement reflects a trend of consolidation in the specialty materials industry, with companies seeking to combine complementary assets and achieve greater scale and efficiency. The merger aims to create a leading global competitor by combining Berry's nonwovens business with Glatfelter's engineered materials expertise.

Comparison to Industry Standards

• The merger of Berry's HHNF business with Glatfelter is similar to other large-scale consolidations in the specialty materials sector, such as the merger of Ahlstrom and Munksjo to form Ahlstrom-Munksjo, which aimed to create a global leader in fiber-based materials.
• The expected synergies of $55 million are in line with typical cost savings targets in similar mergers, where companies often aim for 5-10% of combined costs.
• The pro forma revenue of $3.5 billion would position Magnera as a significant player in the nonwovens and specialty materials market, comparable to other major players like Berry Global itself, prior to the transaction, and companies like DuPont in terms of scale.
• The focus on sustainability and innovation aligns with industry trends, where companies are increasingly seeking to offer eco-friendly solutions and differentiated technologies.

Management Changes

Legal Proceedings

• The HHNF Business is party to various legal proceedings involving routine claims, which are incidental to its business.
• The HHNF Business believes that any ultimate liability would not be material to the business, financial condition, results of operations, or cash flows.

Stakeholder Impact

• Shareholders of Berry will receive shares of Spinco, which will then merge with Glatfelter.
• Glatfelter shareholders will own a smaller portion of the combined company.
• Employees of both Berry's HHNF business and Glatfelter will become part of Magnera.
• Customers of both companies will benefit from a broader product offering and increased innovation.
• Creditors of Glatfelter will have their debt secured by the combined company.

Next Steps

• The offering of the senior secured notes is subject to market conditions.
• Glatfelter shareholders need to approve the merger at a special meeting on October 23, 2024.
• The transaction is expected to close after all conditions are met.
• Magnera will assume the obligations under the notes upon completion of the transaction.

Key Dates

Keywords

senior secured notes, merger, Glatfelter, Berry Global, Magnera Corporation, nonwovens, specialty materials, Reverse Morris Trust, debt financing, synergies