The Merger between UPM and Sappi in the graphic papers sector is seriously threatened. According to Reuters, which cites several sources familiar with the matter, the European Commission appears to be moving toward vetoing the proposed joint venture between the two paper manufacturers. However, no official decision has yet been made.
According to the news agency, UPM and Sappi reportedly did not propose sufficient corrective measures to address Brussels? concerns. The two companies also reportedly failed to convince European authorities during a closed-door hearing held in mid-September. Furthermore, the sale of certain assets would be difficult to envisage due to a lack of potential buyers. When contacted by Reuters, UPM and Sappi declined to comment on these reports.
Brussels Fears a Rise in Paper Prices
The European Commission's concerns, on the other hand, are official. In a statement of objections sent to the two groups on August 26, Brussels stated that their merger "could restrict competition in the markets for various types of communication paper used for printed materials, such as magazines or books" .
The Commission specifically cites wood-containing coated paper?used, among other things, for magazines?as well as wood-free coated paper in the European Economic Area (EEA), the United Kingdom, and Switzerland. It believes that the proposed merged entity could have sufficient market power to raise prices, reduce choice, or worsen the terms offered to customers.
Brussels also states that, at this stage of the investigation, it is not convinced that the cost savings, environmental benefits, and gains in resilience cited by UPM and Sappi would be sufficient to offset these risks.
The Commission launched an in-depth investigation into the transaction in late April. It notes, however, that the statement of objections does not prejudge its final decision, which is expected no later than November 11.
A transaction valued at 1.42 billion euros
UPM and Sappi signed the definitive agreement in late May to establish this 50-50 joint venture. It will combine UPM Communication Papers with the South African paper manufacturer?s European graphic papers business. Together, they have a combined revenue of 1.42 billion euros.
The two paper manufacturers continue to officially defend their project. Following the notification of the Commission?s objections, UPM stated that it remained confident it could address the Commission?s concerns. Sappi, for its part, emphasized that this stage of the proceedings did not prejudge the final outcome of the investigation.
In addition, as the two groups continue to prepare for the transaction, UPM and Sappi appointed four members of the joint venture?s future management team on September 14.
