425: Berry Global and Glatfelter to Merge Nonwovens Businesses, Forming Magnera

Berry Global and Glatfelter are set to merge their health, hygiene, and specialties nonwovens businesses, creating a new entity named Magnera, poised to be 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.
• 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, named Magnera, will be a global leader in the specialty materials industry, with a focus on healthcare, hygiene, and specialty end markets.
• Magnera will offer a complementary product suite, including polymer-based and fiber-based solutions.
• For the last twelve months (LTM) ending June 2024, the combined company generated revenue of $3.5 billion and pro forma adjusted EBITDA of $455 million.
• The transaction is targeted to close no later than early November 2024, subject to customary closing conditions and regulatory approvals.
• Pro forma for the transaction, the company is expected to have Secured and Total Net Leverage of ~4.0x based on LTM PF Adj. EBITDA of $455 million.
• The company plans to launch a Term Loan B in early September.

Sentiment

Score: 7

Explanation: The document presents a positive outlook on the merger, highlighting the strategic benefits and financial prospects of the combined company. While there are risks and challenges, the overall tone is optimistic.

Positives

• The merger creates a differentiated industry leader serving attractive, growing markets.
• The combined company will have a broader range of solutions, unique innovation opportunities, and greater customer choice.
• The merger deepens relationships with leading brand owners, enabling critical innovation and partnership resources.
• Magnera will have a well-invested, global footprint, positioned to serve global and regional customers.
• The company has a diversified customer base of leading global CPGs.
• The company has efficient raw material pass-throughs, protecting material margins.
• The company has a world-class management team focused on value creation.

Negatives

• The company will have a pro forma secured and total net leverage of approximately 4.0x based on LTM pro forma adjusted EBITDA of $455 million.
• The P&L is temporarily impacted by the lag between purchase of raw material and the sale to customers, with a typical lag of approximately 90 days.

Risks

• The transaction is subject to customary closing conditions and regulatory approvals, and may not close by early November 2024.
• Actual results may vary from management projections and forward-looking statements.
• The integration of the combined company may be more difficult, time-consuming, or costly than expected.
• The company's financial performance is subject to fluctuations in raw material prices.
• The company's performance depends on its ability to retain customers and key personnel.

Future Outlook

The combined company, Magnera, aims to be 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.

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 positions Magnera to compete with other large players in the nonwovens and specialty materials market, such as Ahlstrom-Munksjo, Suominen, and Kimberly-Clark, by offering a broader product portfolio and global reach.

Comparison to Industry Standards

• The document references several competitors in the nonwovens space, including companies with sales ranging from $150 million to $3.6 billion.
• Magnera's pro forma revenue of $3.5 billion would position it as a leading player in the industry.
• The document highlights Magnera's comprehensive set of capabilities across various nonwoven technologies and geographies, suggesting a competitive advantage over more specialized players.

Management Changes

Stakeholder Impact

• Shareholders of Berry Global will own approximately 90% of the combined company, while Glatfelter shareholders will own approximately 10%.
• The merger is expected to create a stronger, more competitive company, benefiting customers through a broader range of solutions and innovation.
• Employees of both companies will be integrated into the new organization, Magnera.
• The combined company will serve thousands of customers worldwide.

Next Steps

• Launch the Term Loan B in early September.
• Obtain customary closing conditions and regulatory approvals.
• Close the transaction no later than early November 2024.
• Focus on deleveraging to approximately 3.0x in the near term.
• Conduct a portfolio review/rationalization post-close.

Key Dates