SWM CEO expects 4x leverage after merger but sees US$450M EBITDA enabling debt reduction, CapEx, dividend payouts; Neenah CEO points to filtration, protective films, release liners, healthcare/sustainable packaging as ‘high growth’ areas to focus on

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LOS ANGELES , May 12, 2022 () –

On May 5, Schweizer-Mauduit International (SWM) and Neenah Inc. conducted their respective Q1 earnings calls. Both Jeffrey Kramer, CEO of SWM, and Julie Schertell, CEO of Neenah, commented on the two companies’ pending merger, which is expected to complete in second half of 2022 and generate US$3 billion in combined revenue, with reinforced positions in filtration, healthcare, adhesives, industrial solutions, packaging and specialty paper.

Addressing industry analysts, Kramer gave examples of synergistic capabilities between the two companies:

  1. In the filtration business, Neenah's filter media complement SWM’s products with air, water and industrial applications.
  2. In the tape business, Neenah’s tape backing, coating and saturation capabilities complement SWM’s specialty tape applications.
  3. In packaging, SWM’s medical materials and health care solutions could integrate with Neenah’s medical packaging products. Also, SWM’s engineered papers can be applied in single-use packaging.

Kramer further pointed out that in the drive toward sustainability, Neenah’s sustainable packaging products pair well with SWM’s botanical fibers.

Beyond joining forces in product development and cross-selling a broader post-merger portfolio, Kramer sees the combined company having the ability to penetrate underserved geographic markets.

On March 28, day of initial announcement of the merger, debt rating firm Moody's issued a note citing that SWM’s planned merger with Neenah is ‘credit negative’ and ‘modestly deleveraging.’ Moody’s further noted that SWM's financial leverage ‘remains high for its business risk.’

On the topic of leverage, Kramer expects the combined company’s year-end net leverage to be approximately 4x and will trend lower thereafter.

The optimism in deleveraging the company comes from management’s expectation that the post-merger EBIDTA will exceed $450 million. Kramer also foresees a resulting strong free cash flow which will enable capital investments in technology and manufacturing while paying down debt, and thereafter, even paying dividends to shareholders. During the earnings call, Kramer emphasized to analysts that SWM has a history of paying out ‘robust’ dividends.

Neenah CEO Julie Schertell has been named the CEO of the combined company. While addressing her audiences during Neenah’s Q1 earnings call, Schertell pointed to filtration, protective films, release liners, healthcare and sustainable packaging as the ‘high growth’ business areas that the resulting company will focus on after the merger deal closes.

According to Schertell, approximately 50% of the estimated $65-million merger synergies will be achieved within 12 months after deal closing, and the rest to be accomplished within 24 to 36 months after closing.

Schertell further stated that 50% of the cost synergies will come from SG&A expense reduction via elimination of redundancies in public company costs, staffing, outside agencies and procurement services. Schertell also expects cost efficiencies to be achieved through vertical integration opportunities, freight and warehousing optimization.

Finally, both CEOs reported positive customer feedback since the merger announcement. Although the merger is expected to strengthen positioning in packaging and specialty materials, customers in the fine paper business have reached out to express excitement about potential opportunities given a broader range of products.


The primary sources of this article are the Q1 earnings call transcripts of Schweitzer-Mauduit International and Neenah Inc., the companies' joint press release on March 28 on the merger, and Moody's credit rating note on Schweitzer-Mauduit, published on March 28 after the merger announcement

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