Five months after the uPM and Sappi sign letter of intent formalize the definitive agreement for their joint venture in graphic paper in Europe.
The future structure will bring together the entirety of the Finnish group's UPM Communication Papers and the European graphic paper activities of South Africa's Sappi. Equally owned, it will operate as an autonomous company with its own governance and financing.
"The definitive agreement is an important step in the creation of this joint venture, which we consider necessary to guarantee long-term commitment and continuity of supply for graphic paper customers in Europe." says Massimo Reynaudo, President and CEO of UPM.
The future joint venture will bring together 12 paper mills in Europe and the United States.
Sappi will contribute its mills at Gratkorn in Austria, Ehingen in Germany, Maastricht in the Netherlands and Kirkniemi in Finland. UPM will integrate the Augsburg and Schongau mills and Nordland lines 1 and 4 in Germany, Rauma with RaumaCell, Kymi outside the pulp business and Jämsänkoski line 6 in Finland, Caledonian in the UK and Blandin in the USA.
700 million euros in financing already secured
The two groups have also secured 600 million euros in external financing, supplemented by a 100 million euro revolving credit line to cover the future structure's cash requirements.
All the assets transferred are valued at 1.42 billion euros, excluding expected synergies. UPM Communication Papers, with sales of 2.49 billion euros and comparable EBITDA of 241 million euros, represents an enterprise value of 1.1 billion euros, compared with 320 million euros for Sappi's European activities.
In exchange for the assets contributed to the joint venture, UPM will receive 475 million euros in cash, while Sappi will receive 90 million euros. The two groups will each hold a 50% stake in the new structure. UPM will also transfer 411 million euros in pension and other employee-related liabilities to the joint venture.
100 million euros in synergies expected
The two papermakers estimate annual synergies at around 100 million euros. These will be based on industrial and logistics optimization, range simplification and purchasing.
The two groups justify this merger by the deterioration of the graphic paper market, marked by persistent overcapacity, pressure on prices, rising energy costs and competition from imports.
For UPM, which generates sales of ?7,628 million without this subsidiary, this operation will improve its margins and reduce its direct exposure to the graphic paper markets in Europe and North America.
The project remains subject to the approval of Sappi shareholders and the European, American and Chinese competition authorities.
In April, the European Commission launched an in-depth phase II investigation into the transaction. The final decision is expected by the end of 2026.
Until then, UPM Communication Papers and Sappi's European activities will continue to operate separately.
