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Ahlstrom-Munksjö to acquire U.S. specialty paper producer Expera for enterprise value of USD 615 millionHeading

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Ahlstrom-Munksjö, a global leader in fiber based materials, has agreed on July 23, 2018 with Specialty Papers Holding, L.P. to acquire Expera Specialty Solutions (“Expera”), a U.S. based specialty paper producer, to expand its presence in North America and further strengthen its offering of advanced custom-made fiber based materials. The acquisition will almost triple Ahlstrom-Munksjö’s net sales in the U.S. and provide a platform for growth. Together Ahlstrom-Munksjö and Expera, combined with the Caieiras acquisition announced in April, generated illustrative combined annual net sales of EUR 2,921 million in 2017. Ahlstrom-Munksjö has secured fully committed financing for the transaction.

The acquisition supports Ahlstrom-Munksjö’s ambition to strengthen its position in selected high-end, value adding areas of the global fiber-based materials market that offer positive growth outlook and are supported by market drivers for more sustainable products and solutions. The acquisition will be earnings enhancing.

The Expera acquisition :

 Transformative acquisition with annual net sales of USD 721 million (EUR 616 million) for 2017
 Significant expansion of North American presence, including new product segments
 Strong platform in the U.S. that provides Ahlstrom-Munksjö with attractive growth opportunities and additional U.S. production capacity
 Pure specialty paper producer in value-added product categories
 Four paper mills with two integrated pulp mills
 Experienced management with a profit improvement track-record
 The purchase price payable is USD 615 million (EUR 526 million) on a cash and debt free basis, subject to a post completion adjustment based upon the level of net working capital and cash and debt in the acquired business on the closing date
 Comparable EBITDA of USD 71 million (EUR 61 million) for 2017. Comparable EBITDA includes USD 3 million (EUR 3 million) of items which will not have a continuous impact on EBITDA such as start-up cost of investment and current management fees.
 Estimated near term annual synergy benefits of approximately USD 10 million (EUR 8 million) with additional potential from planned annual run rate EBITDA of recently finalized investment of approximately USD 11 million (EUR 9 million)
 Dynamic synergies relating to product development and best practice sharing

Expera is highly complementary to Ahlstrom-Munksjö and will provide opportunities for cross-selling and best practice sharing as well as preliminary cost synergies of approximately EUR 8 million (USD 10 million) by year end 2019. In addition, value will be created from joint product development and sharing of best practices. One-time costs related to the achievement of synergies are estimated at EUR 7 million (USD 8 million). Strength in product development will help the company to serve its customers better.

Hans Sohlström, President and CEO of Ahlstrom-Munksjö comments : “We are excited to welcome Expera and their highly talented leadership team led by Russ Wanke to Ahlstrom-Munksjö. Together, our combined, complementary capabilities and expertise will further strengthen our position in fiber-based materials and will enable us to offer even more solutions, value and efficiencies to our customers in North America and around the world. Expera contributes to our global platform with their competences, a high quality offering and a team that drives customer value, innovations and sustainability.”

“As a larger company with a strong balance sheet and greater earnings generation this transaction paves the way for further profitable growth to be carried out both organically and through acquisitions. While the transaction will temporarily increase our debt, over time we see an optimal leverage of around 2x net debt to EBITDA, which gives us sufficient maneuvering space for further development of the company. I appreciate also our continued strong ability to create cash flow as a combined company. We look forward to bringing this transaction to completion and working with the competent Expera team”.

Russ Wanke, the President and CEO of Expera, will become a member of Ahlstrom-Munksjö’s Executive Management Team following the closing. He will be responsible for the acquired operations, which will form a fifth business area and reporting segment in Ahlstrom-Munksjö. Furthermore, Russ Wanke and certain other members of the management team will invest in Ahlstrom-Munksjö shares in connection with the closing.

Russ Wanke, Expera’s Chief Executive Officer, said, “This is the beginning of an exciting new era for Expera’s team and customers. Joining Ahlstrom-Munksjö, a global leader in fiber-based materials, strengthens Expera’s platform and allows for growth in the future. This is an important development for our customers, employees and communities, as we continue to capitalize on the strength of the specialty paper industry worldwide, and provide innovative products with a superior level of service.” Wanke continued, “Our entire team is very excited about Ahlstrom-Munksjö’s commitment to manufacturing excellence and to supporting our innovative business.”

Closing of the acquisition is subject to regulatory approvals and other customary closing conditions. Closing of the acquisition is expected during the second half of 2018.
Financing of the transaction :

Debt financing

Ahlstrom-Munksjö has secured fully committed financing for the transaction. Ahlstrom-Munksjö has secured USD 615 million in bank financing for the acquisition from Nordea Bank AB (“Nordea”) and Skandinaviska Enskilda Banken AB (“SEB”), together acting as Mandated Lead Arrangers, Underwriters and Bookrunners. The acquisition financing consists of (i) an USD 180 million bridge-to-equity facility with termination date 30 June 2019, (ii) an USD 185 million bridge facility with 12 month maturity from the earlier of the closing and 3 months from signing and (iii) an USD 250 million term loan facility with 5 years maturity from the earlier of the closing and 3 months from signing.

In addition, Nordea and SEB have agreed to provide certain back-stop/refinancing facilities in relation to existing financing arrangements.

Rights offering

To finance part of the transaction, Ahlstrom-Munksjö plans to conduct a rights offering of approximately EUR 150 million, which is expected to be launched during the fourth quarter of 2018.

The Company will separately convene an extraordinary general meeting of shareholders (EGM) to authorize the Board of Directors to resolve on the share issue. Shareholders holding in aggregate approximately 35.9% (June 30, 2018) of the shares and votes in the Company, AC Invest Five B.V., a company belonging to Ahlström Capital group, Viknum AB, Belgrano Inversiones Oy, Ilmarinen Mutual Pension Insurance Company, Varma Mutual Pension Insurance Company and Baltiska Handels A.B. have irrevocably undertaken to attend the EGM and vote in favor of the share issue authorization. AC Invest Five B.V., a company belonging to Ahlström Capital group, Viknum AB, Belgrano Inversiones Oy and Baltiska Handels A.B. have further expressed their support and intention to subscribe for their respective pro rata allocation in the rights offering. The remainder of the rights offering will be underwritten by Nordea and SEB, subject to customary terms and conditions.

The proceeds from the rights offering will be used for the financing of the transaction or repayment of outstanding bridge facilities related to the transaction.

Expera is among the leading North American suppliers in attractive and high growth specialty paper segments. The company provides highly specialized materials that protect and enhance the performance of a wide range of industrial and consumer applications. The materials are predominately designed to the customers’ needs rather than generic industry standards. The company’s customer relationships are long-standing, and focused on quality and service. The product portfolio is less exposed to economic cycles given its high share of sales to more cycle-resistant end-markets such as food and retail.
Expera’s key product categories :

Industrial & Technical

· Backings and barriers for technical material used in residential and commercial construction, tape applications and metal and glass manufacturing
Food Processing & Packaging

· Specialty papers to wrap and package processed foods and quick service restaurants-prepared foods
Pressure-Sensitive Release Liner

· Variety of uses in which specialty paper enables customers’ products to retain adhesive properties prior to final application

Expera’s manufacturing platform is comprised of four paper mills, of which two are integrated into pulp production in the U.S. state of Wisconsin : Rhinelander, De Pere, Mosinee and Kaukauna. In 2017 Expera finalized the investment in a new state of the art silicone coater and started production ramp-up for a key customer based on long term volume commitment, which is expected to generate growth opportunities for the Expera business.

In 2013, KPS created Expera from the combination of the specialty paper businesses of Thilmany, LLC and Wausau Paper, Corp., with deep roots in the Wisconsin paper industry dating back more than 135 years. Through its stewardship and capital investment in state of the art production and coating assets KPS created one of the few pure play specialty paper businesses in North America. Under KPS’s ownership, Expera successfully integrated the two businesses and created significant value with no customer loss and interruption. The team that KPS brought together in the transaction is highly experienced in complex acquisition and mill integration processes.

Selected financial information

Basis of preparation

The selected financial information presented below is based on Ahlstrom-Munksjö’s unaudited pro forma financial information for the financial year 2017 prepared in accordance with IFRS, Expera’s audited financial statements for the financial year 2017 prepared in accordance with US GAAP and Caieiras’s unaudited special purpose carve-out management reporting information for the financial year 2017 prepared in accordance with Brazilian GAAP. The figures have been rounded to the nearest million.

The combined financial information is for illustrative purposes only. The combined financial information gives an indication of the combined company’s net sales assuming the activities were included in the same company from the beginning of the last financial year. The combined financial information is based on a hypothetical situation and should not be viewed as pro forma financial information as differences in accounting principles have not been taken into account. Ahlstrom-Munksjö will in connection with the rights offering publish unaudited pro forma financial information to illustrate the impact of the acquisitions of Expera and Caieiras and the related financing transactions to Ahlstrom-Munksjö’s financial information prepared in accordance with IFRS.

Expera’s financial information below and all other financial figures in USD in this release have been converted into EUR using the EUR/USD exchange rate 1.17. Caieiras’ financial information below and all other financial figures in BRL in this release have been converted into EUR using the EUR/BRL exchange rate 4.49.

Key figures

Expera (US GAAP)

2017 EUR million2017 USD million
Net sales616721
EBITDA*5666
Comparable EBITDA*6171

* Expera EBITDA includes expense item of EUR 3.8 million (USD 4.5 million) relating to a change in contingent consideration payable pursuant to a purchase agreement and other items that are, based on management’s preliminary assessment, considered to be outside ordinary course of business of EUR 0.9 million (USD 1.0 million), net expense which are considered as adjusting items in accordance with Ahlstrom-Munksjö principles. In addition, Expera EBITDA includes EUR 1.5 million (USD 1.7 million) of current management fees as well as EUR 0.9 million (USD 1.1 million) of start-up costs related to investments which will not have a continuous impact on EBITDA.

Caieiras (Brazilian GAAP) On April 24 2018, Ahlstrom-Munksjö agreed to acquire the Caieiras paper mill in Brazil. Expected closing during Q3 2018. Annual synergies are estimated to be up to EUR 6 million.

EUR million2017
Net sales73
EBITDA*11
Comparable EBITDA*12

* Caieiras EBITDA includes net income of EUR 0.1 million for energy resale and restructuring expenses of EUR 0.8 million.

Ahlstrom-Munksjö

EUR million2017 pro forma
Net sales2,233
EBITDA267
Comparable EBITDA290

Illustrative unaudited combined net sales 2017 of Ahlstrom-Munksjö, after Expera and Caieiras acquisitions

EUR million2017
Net sales2,921

Illustrative unaudited net debt impact of the planned transactions

Ahlstrom-Munksjö’s net debt amounted to EUR 395 million as at March 31, 2018. The impact of the planned acquisitions of Expera and Caieiras to Ahlstrom-Munksjö’s net debt is estimated to be an increase of approximately EUR 475 million, assuming the debt-free purchase price of USD 615 million (EUR 526 million) for Expera and the rights offering of EUR 150 million as well as the debt free purchase price of approximately EUR 100 million for Caieiras. The actual net debt impact of these acquisitions will depend on the final purchase considerations taking into account purchase price adjustments at closing and prevailing exchange rates, and accordingly may differ from this estimate.

Ahlstrom-Munksjö is being advised by BDT & Company International, LLP ; and PwC as financial advisors, while Hannes Snellman and Cleary Gottlieb Steen & Hamilton LLP act as legal advisors.

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