Ahlstrom and Munksjö to combine and creating a global leader in sustainable and innovative fibre-based solutions
Finnish Ahlstrom and Munksjö to combine and creating a global leader in sustainable and innovative fibre-based solutions
The Boards of Directors of Munksjö Oyj (“Munksjö”) and Ahlstrom Corporation (“Ahlstrom”) announce the combination of the two companies through a merger.
• The combination will create a global leader in sustainable and innovative fiber-based solutions with preliminary combined annual net sales of approximately EUR 2.2 billion and adjusted EBITDA of EUR 249 million. The combined company will have approximately 6200 employees as well as production in 14 countries.
• The combination is expected to create significant value for the stakeholders in the combined company through stronger global growth opportunities and improved operational efficiency. The combined company’s growth ambitions will be supported by a strong balance sheet and strong cash flow generation.
• Annual cost synergies are estimated to be approximately EUR 35 million. The cost synergies are expected to be gradually realised over two years following completion of the combination with a more pronounced impact expected from the fourth quarter of 2017.
• The combination will be implemented as a statutory absorption merger whereby Ahlstrom will be merged into Munksjö.
• Ahlstrom’s shareholders will receive as merger consideration 0.9738 new shares in Munksjö for each share in Ahlstrom owned by them, corresponding to an ownership in the combined company following the completion of the combination of approximately 52.8 % for Munksjö shareholders and approximately 47.2% for Ahlstrom shareholders.
o Based on the one-month volume-weighted average share prices of both Munksjö and Ahlstrom, the corresponding ownership of Munksjö and Ahlstrom shareholders would have been approximately 52.1% / 47.9%, respectivelyii
o Based on the three-month volume-weighted average share prices of both Munksjö and Ahlstrom, the corresponding ownership of Munksjö and Ahlstrom shareholders would have been approximately 54.0% / 46.0%, respectivelyiii
• Munksjö and Ahlstrom propose to distribute funds in the total amount of approximately EUR 23 million each, corresponding to EUR 0.45 per share in Munksjö and EUR 0.49 per share in Ahlstrom, to their respective shareholders before the combination is completed in lieu of the companies’ ordinary annual distribution.
• The completion of the combination is subject to, inter alia, approval by the Extraordinary General Meetings (each, an “EGM”) of Munksjö and Ahlstrom, which are currently expected to be held on 11 January 2017, as well as merger control approvals from relevant competition authorities.
• The combined entity has obtained underwritten financing for the merger from Nordea and SEB.
• Shareholders holding in aggregate approximately 32.9% of the shares and votes in Ahlstrom and approximately 39.6% of the shares and votes in Munksjö, have irrevocably undertaken to attend the companies’ respective EGMs and to vote in favour of the combination.
• The combination is expected to be completed in the beginning of the second quarter of 2017.
• Financial targets for the combined company are expected to include an EBITDA margin above 14% over a business cycle, net gearing below 100%, as well as a stable and annually increasing dividend.
Peter Seligson, Chairman of the Board of Munksjö, commented:
“After the very successful integration of our acquired businesses during the past years and strong operating performance, the combination with Ahlstrom is a natural first step in the execution of our growth strategy, combining two leading businesses into one strong engine for performance and growth. The combined company will be positioned for strong long term-financial returns partly through the significant communicated cost synergies but mainly through enhanced future competitiveness and growth opportunities.”
Hans Sohlström, Chairman of the Board of Ahlstrom, continued: “During the past two years the Ahlstrom management has executed a very focused and successful business turn-around by shedding costs and by focusing on commercial excellence with new products and value adding solutions for our customers. The financial results speak for themselves. The combination now enables us to directly jump into a growth mode with a much stronger balance sheet and greater earnings potential which will benefit our shareholders and our customers as well as other stakeholders. We will together be able to leverage several strategic advantages and we will focus on shareholder returns through increased profits as well as profitable global growth initiatives in the area of sustainable and innovative fiber-based solutions.”
Jan Åström, President and CEO of Munksjö, commented: “Munksjö and Ahlstrom are two solid and profitable companies with strong cash flows that already today have attractive positions within their respective businesses. Together we will form an even stronger growth platform supported by the cost synergies identified but also by the added top line opportunities. The offerings and market presences are complementary, enabling us to offer our customers a broader range of solutions with a truly global reach. Our collective quality leadership, know-how and innovation capacity will add further value to all customers. About 90 per cent of the combined company’s products are made from renewable fibres, which will be increasingly important for our sustainability ambitions and footprint going forward.”
BACKGROUND TO THE COMBINATION
Munksjö and Ahlstrom are both focused on sustainable and innovative fibre-based solutions. The companies have also had a jointly operated site in Turin, Italy since the business combination of Munksjö AB and Ahlstrom’s Label and Processing business in 2013. For the past years, both companies have focused on streamlining operations and improving operational efficiency with clear results.
The combination is a natural next step in the development of the two companies as it has a strong strategic logic and is expected to improve competitiveness. The combination is also expected to increase and create new growth opportunities through the complementary customer bases, product portfolios and geographical footprints of the two companies. The companies also believe that by combining their operations they can achieve further efficiency improvements as well as benefits of scale in the capital markets in the form of increased liquidity, investor interest and analyst coverage. As a result of their history, both companies know each other well and strongly believe the companies will have a good operational fit. Therefore, the Boards of Directors of Munksjö and Ahlstrom have, on 7 November 2016, entered into a combination agreement (the “Combination Agreement”) and executed a merger plan, pursuant to which the companies will combine. The merger plan and a summary of the Combination Agreement are included as annexes to this stock exchange release.
Rational for the combination
The combination will create a global leader in sustainable and innovative fibre-based solutions (more than 90% produced from renewable fibres), with leading global positions in the main product areas decor, filtration and release liners. The combined company will be better positioned to serve customers and will have a strengthened position in the value chain through increased size.
Through the combination, a strong and well-established platform will be created with multiple growth opportunities through a broadened customer base, a widened geographical footprint and expanded product and service offerings. Together, the companies will be able to serve a broad range of end-market segments with complementary product and service offerings (e.g., filtration and abrasives to the automotive industry as well as food and beverage packaging and release liners to the food and beverage industry), which creates potential for innovation within new customer-focused solutions. The two companies have complementary geographical footprints, as Munksjö has strong market positions in Europe and South America and Ahlstrom has strong market positions in Europe, North America and Asia, which opens up new geographical growth opportunities through coordination of the product portfolios and distribution and logistics networks. The combined company will have a more diversified revenue and earnings base through this wider geographic footprint and broader product offering and is expected to have a strong financial position and cash flow to support the combined company’s strategic growth ambitions. The increased size and strengthened capital base also gives potential for increased financing options and lower cost of debt. Furthermore, the combination offers employees enhanced career opportunities, supporting the combined company’s ability to attract and retain top talent.
The combination is expected to create significant value for the stakeholders in the combined company through synergies resulting from the coordination of the operations of the two companies. Short to mid-term, the annual cost synergies are estimated to be approximately EUR 35 million.
The majority of the planned cost synergies are expected to be achieved through organisational streamlining, mainly within general, administrative and sales expenses (SG&A) as well as through a focusing of central administration and a combination of administration for closely located sales offices and mills. The remaining planned cost synergies are mainly expected to be reached through coordination of purchasing and production.
The annual cost synergies are expected to be gradually realised over two years following completion of the combination. A more pronounced impact on the combined company’s profitability is expected from the fourth quarter of 2017 and the cost synergies are expected to be fully realised as from the second quarter of 2019. Integration costs of approximately EUR 30 million are expected to have nonrecurring cash flow impacts from the third quarter of 2017 to the second quarter of 2018, with the majority of nonrecurring costs impacting the second and third quarters of 2017. Munksjö and Ahlstrom will inform, consult and negotiate with relevant employee organisations regarding the social, economic and legal consequences of the proposed combination in accordance with the applicable legal requirements.
The combined company will continue to evaluate additional revenue and cost synergies beyond the current plan through leveraging the combined R&D platform, cross selling through the combined customer base and further coordination of production, sales and procurement.
THE COMBINED COMPANY
The combined company will become a global leader in sustainable and innovative fiber-based solutions with preliminary combined annual net sales of approximately EUR 2.2 billion and EBITDA of EUR 249 million for the twelve months ended 30 September 2016, and approximately 6,200 employees. The combined company will have 41 production and converting facilities in 14 countries and will have leading global positions in its main product areas:
• Decor: Surface cover for wood-based panels, used in the production of furniture, flooring and other interior and exterior architectural panels.
• Filtration: Products used for automotive applications (oil, fuel, and air filters), gas turbines, and indoor air quality filters. Advanced filter applications for, among others, laboratory use and life science applications.
• Industrial Solutions: Release liners and other products used for, among others, labelling, specialty tapes, abrasive backings, electrotechnical insulation and other industrial applications.
• Specialties: Specialty products used for, among others, building and wind applications, medical care, hygiene and food packaging.
Board of Directors and Management
Following consultation with the shareholders’ nomination board of each of Munksjö and Ahlstrom, the Board of Directors of Munksjö will make a proposal to the EGM of Munksjö resolving on the combination that Peter Seligson, Elisabet Salander Björklund, Sebastian Bondestam, Alexander Ehrnrooth, Hannele Jakosuo-Jansson, Mats Lindstrand and Anna Ohlsson-Leijon, current members of the Board of Directors of Munksjö, be conditionally elected to continue to serve on the Board of Directors of Munksjö following the completion of the combination and that Hans Sohlström, Jan Inborr, Johannes Gullichsen and Harri-Pekka Kaukonen, current members of the Board of Directors of Ahlstrom, be conditionally elected as members of the Board of Directors of Munksjö following the completion of the combination. The nominees have indicated that if elected they will elect Hans Sohlström as Chairman of the Board of Directors of Munksjö, and Peter Seligson and Elisabet Salander Björklund as Vice-Chairmen of the Board of Directors of Munksjö.
Munksjö’s current CEO, Jan Åström, will continue to serve as the CEO of the combined company. The management team of the combined company will also include the current CFO of Munksjö, Pia Aaltonen-Forsell, and the current CFO of Ahlstrom, Sakari Ahdekivi.
Ownership Structure and Corporate Governance
Pursuant to the merger plan, Ahlstrom shareholders will receive as merger consideration 0.9738 new shares in Munksjö for each share in Ahlstrom owned by them, corresponding to an ownership in the combined company following the completion of the combination of approximately 52.8% for Munksjö shareholders and approximately 47.2% for Ahlstrom shareholders. The table below illustrates the largest owners of the combined company, assuming all current Ahlstrom shareholders are also shareholders at the completion of the combination.
The combined company will have a primary listing on Nasdaq Helsinki Ltd and a secondary listing on Nasdaq Stockholm Ltd. The combined company will be domiciled in Finland.
The combined company will provisionally be called Ahlstrom-Munksjö Oyj, with the intention to propose a new name by the time of completion of the combination for approval by the annual general meeting of Munksjö following the completion of the combination.
Divestment of Osnabrück plant
As announced by Ahlstrom on 7 November 2016, Ahlstrom has signed an agreement to divest its German subsidiary with operations in Osnabrück to Kämmerer GmbH. The transaction will also include Ahlstrom’s 50% stake in AK Energie (a joint venture with Kämmerer). The transaction is expected to be completed in January 2017.
Ahlstrom has signed an agreement to sell its German subsidiary with operations in Osnabrück to Kämmerer Paper Holding GmbH.
The parties have agreed not to disclose the purchase price of the transaction.
Ahlstrom produces base papers for wallcovers, poster papers as well as release liners for self-adhesive labels at the Osnabrück plant, which is part of the Filtration & Performance business area. The sale will reduce Ahlstrom’s annual net sales by about EUR 80 million and the impact on adjusted operating profit is slightly positive. The transaction will also include Ahlstrom’s 50 % stake in AK Energie (a joint venture with Kämmerer), which is the site’s utility providing power and water treatment services.
The divestment will allow Ahlstrom to develop its other businesses more efficiently and pursue growth in areas aligned to the company’s strategy.
Kämmerer is a specialty paper company operating two production lines at the same site, producing pre-impregnated decor papers and abrasive paper backings. The transaction is expected to be completed in January 2017.
Preliminary Combined Financial Information
Basis for Preparation
The unaudited financial information for the combined company presented below is based on Munksjö’s and Ahlstrom’s audited consolidated financial statements for the year ended 31 December 2015 and unaudited consolidated interim information for the nine months ended 30 September 2016 and unaudited financial statements bulletins for the year ended 31 December 2015.
The combined financial information is presented for illustrative purposes only. The combined income statement information, the combined operating cash flow and capital expenditure information have been calculated assuming the activities had been included in one entity from the beginning of each period. The preliminary annual net sales, adjusted EBITDA and EBITDA of the combined company have been calculated as a sum of combined financial information for the twelve months ended 30 September 2016. The combined statement of financial position and interest-bearing net debt illustrates the impacts of the combination as if it had occurred on 30 September 2016.
The combined financial information is based on a hypothetical situation and should not be viewed as pro forma financial information inasmuch as any purchase price allocation, differences in accounting principles, adjustments related to transaction costs and impacts of the refinancing have not been taken into account. The difference between the preliminary merger consideration, which has been calculated based on the closing price of the shares in Munksjö on 2 November 2016 and Ahlstrom’s net assets as at 30 September 2016 has been allocated to non-current assets. The expected cost synergies have not been included.
For the purposes of financial reporting, the actual combined financial information will, however, be calculated based on the final merger consideration and the fair values of Ahlstrom’s identifiable assets and liabilities as at the date of completion of the combination, including the impacts of the refinancing that is contingent on the completion of the combination. The combined company’s financial information that will be published in the future following the completion of the combination could therefore differ significantly from the illustrative combined financial information presented below. Accordingly, this information is not indicative of what the combined company’s actual financial position, results of operations or key figures would have been had the combination been completed on the dates indicated.
The transactions between Munksjö and Ahlstrom have not been eliminated from the combined income statement information. The combined net sales include transactions between Munksjö and Ahlstrom that amounted to EUR 18.1 million for the nine months ended 30 September 2016 and to EUR 30.7 million for the year ended 31 December 2015. The transactions between Munksjö and Ahlstrom did not have any impact on the combined EBITDA or adjusted EBITDA.
The income statement information of Ahlstrom has not been adjusted for the sale of Osnabrück. The net sales of Osnabrück amounted to EUR 60.4 million for the nine months ended 30 September 2016 and EUR 80.9 million for the year ended 31 December 2015. The EBITDA of Osnabrück amounted to EUR -1.2 million for the nine months ended 30 September 2016 and EUR -10.7 million for the year ended 31 December 2015. The adjusted EBITDA of Osnabrück amounted to EUR -1.2 million for the nine months ended 30 September 2016 and EUR -9.1 million for the year ended 31 December 2015.
The statement of financial position of Ahlstrom has not been adjusted for the sale of Osnabrück. The financial line items of Osnabrück included in the statement of financial position of Ahlstrom as at 30 September 2016 are non-current assets of EUR 3.8 million, current assets excluding cash of EUR 49.3 million, cash and cash equivalents of EUR 2.6 million, total equity of EUR 5.7 million, non-current liabilities of EUR 33.3 million and current liabilities of EUR 16.7 million. In addition to the cash and cash equivalents of Osnabrück as at 30 September 2016, Ahlstrom will settle Osnabrück’s internal receivable from Ahlstrom amounting to EUR 26.5 million in connection with the sale of Osnabrück.
The receivable balance as at 30 September 2016 between Munksjö and Ahlstrom amounting to EUR 2.5 million is not eliminated from the combined current assets and liabilities balances.
The hybrid bond of EUR 100.0 million recorded in Ahlstrom’s equity is included in current liabilities and interest-bearing net debt in the combined statement of financial position information.
Combined statement of financial position information has not been adjusted for the proposals of Munksjö and Ahlstrom to distribute funds in the total amount of approximately EUR 23 million each to their respective shareholders before the combination is completed.
The Boards of the Directors of Munksjö and Ahlstrom have together with the management of the companies considered appropriate financial targets for the combined company and agreed on the following framework. Subsequent to the completion of the combination, the new management team of the combined company will together with the Board of Directors of the combined company refine and possibly adapt these targets.
• EBITDA margin target: EBITDA margin above 14% over a business cycle
• Net gearing target: Net gearing below 100%
• Dividend target: The combined company aims for a stable and annually increasing dividend
The Statutory Merger in Brief
The proposed combination of Munksjö and Ahlstrom will be executed through a statutory absorption merger pursuant to the Finnish Companies Act in such a manner that all assets and liabilities of Ahlstrom are transferred without a liquidation procedure to Munksjö.
Ahlstrom’s shareholders will receive as merger consideration 0.9738 new shares in Munksjö to be issued for each share in Ahlstrom (i.e., new shares in Munksjö will be issued to Ahlstrom’s shareholders in proportion to their existing shareholdings in Ahlstrom in the ratio of 0.9738:1). The aggregate number of the new shares in Munksjö to be issued is expected to be 45,376,992 shares (excluding treasury shares held by Ahlstrom and assuming that none of Ahlstrom’s shareholders demand at the EGM of Ahlstrom to decide on the merger that their shares be redeemed).
Ahlstrom has received an advance tax ruling from the Finnish Tax Office for Major Corporations (Konserniverokeskus) according to which the statutory merger will be treated as a tax neutral merger as defined in Section 52 a of the Finnish Business Income Tax Act.
The completion of the statutory merger is subject to, inter alia, approval by the EGMs of Munksjö and Ahlstrom currently expected to be held on 11 January 2017, as well as merger control approvals from relevant competition authorities. The companies will publish the invitations to their respective EGMs through separate stock exchange releases.
The Board of Directors of Munksjö and Ahlstrom have also agreed to propose to their respective EGMs the authorisation of the respective Board of Directors to resolve upon the distribution of funds in the total amount of approximately EUR 23 million each, corresponding to EUR 0.45 per share in Munksjö and EUR 0.49 per share in Ahlstrom, to their respective shareholders before the completion of the combination in lieu of the companies’ ordinary annual distribution. Munksjö would implement such distribution as a return of equity from the reserve for invested unrestricted equity and Ahlstrom would implement such distribution as a dividend payment. The completion of the combination is expected to take place in the beginning of the second quarter of 2017, provided that the conditions for the statutory merger have been fulfilled. Therefore, no annual general meeting of Ahlstrom is expected to be held in 2017. The 2017 annual general meeting of Munksjö is expected to be held following the completion of the combination.
The merger plan is included as an annex to this stock exchange release and contains information, inter alia, on the merger consideration to Ahlstrom’s shareholders, the planned time for completion of the statutory merger, the division of Ahlstrom’s assets and liabilities to Munksjö and the conditions for the completion of the statutory merger.
Further information about the combination, the merger and the combined company will also be available in a prospectus to be published by Munksjö prior to the EGMs of Munksjö and Ahlstrom.
• December 2016: Publication of merger prospectus
• 11 January 2017: EGMs of Munksjö and Ahlstrom
• Beginning of the second quarter of 2017: Expected completion of the combination
• On or about first trading date following the completion: Expected first trading day of the new shares in Munksjö issued to Ahlstrom’s shareholders
With support in their assessments in the form of a fairness opinion from the respective financial advisors of Munksjö and Ahlstrom, the Boards of Directors of Munksjö and Ahlstrom have concluded that the merger and the merger consideration are in the best interest of the respective companies and their respective shareholders.
The combined entity has obtained underwritten financing for the merger from Nordea and SEB, as the joint underwriters. The new financing arranged in connection with the combination consists of the following credit facilities:
• In the aggregate, approximately EUR 560 million multicurrency term and revolving credit facilities for Munksjö with maturities ranging between three and five years; and
• EUR 200 million bridge facility for Ahlstrom, which will be assumed by Munksjö as from the date of completion of the merger with amended terms and commitments reduced to EUR 100 million. The bridge facility has a maturity of 18 months from the planned combination date.
The facilities are to be used, inter alia, for the refinancing of existing indebtedness, for transaction costs and for general corporate purposes. Ahlstrom intends to obtain relevant waivers and consents for certain existing financing arrangements. The financing secured for the combined company is expected to lower its total cost of financing.
Shareholders holding in aggregate approximately 32.9 % of the shares and votes in Ahlstrom and approximately 39.6% of the shares and votes in Munksjö, including Ahlström Capitalvi, Virala group of companiesvii, Ilmarinen Mutual Pension Insurance Company, Varma Mutual Pension Insurance Company, Peter Seligsonviii, Johan Erik Gullichsen, Robin Ahlström, Johannes Gullichsen, Thomas Ahlström and Martti Saikku, have irrevocably undertaken to attend the respective EGMs of Munksjö and Ahlstrom and to vote in favour of the combination.
Munksjö is being advised by Access Partners and SEB as financial advisors, and White & Case LLP as legal advisor. Ahlstrom is being advised by Nordea as financial advisor, and Hannes Snellman as legal advisor.
Munksjö is a world-leading manufacturer of advanced paper products developed with intelligent paper technology. Munksjö offers customer-specific innovative design and functionality in areas ranging from flooring, kitchens and furnishings to release papers, consumer-friendly packaging and energy transmission. The transition to a sustainable society is a natural driving force for Munksjö’s growth as the products can replace non-renewable materials. This is what “Made by Munksjö” stands for. Given Munksjö’s global presence and way of integrating with the customers, the company forms a worldwide service organisation with approximately 2,900 employees and 15 facilities located in France, Sweden, Germany, Italy, Spain, Brazil and China. Munksjö’s share is listed on Nasdaq in Helsinki and Stockholm.
Ahlstrom provides innovative fibre-based materials with a function in everyday life. Ahlstrom is committed to growing and creating stakeholder value by proving the best performing sustainable fibre-based materials. Ahlstrom’s products are used in everyday applications such as filters, medical fabrics, life science and diagnostics, wallcoverings, tapes, and food and beverage packaging. In 2015, Ahlstrom’s net sales amounted to EUR 1.1 billion. Ahlstrom’s 3,300 employees serve customers in 22 countries. Ahlstrom’s share is listed on Nasdaq Helsinki.
Changes in the shareholding in Ahlstrom Corporation
Ahlstrom has received an announcement under Chapter 9, Section 5 of the Securities Market Act from Virala Oy Ab, dated November 7, 2016, regarding changes in the shareholding of the said shareholder’s subsidiaries.
According to the announcement, Viknum AB has acquired the total holding in Ahlstrom Corporation of Vimpu Intressenter Ab. Viknum and Vimpu Intressenter are b