UPM and Sappi to join forces

Paper and material specialists, UPM-Kymmene and Sappi, have announced this morning [December 4th] that the two companies have signed a non-binding letter of intent to create what they call “the Joint Venture”, in response to structural changes in the European graphic paper industry.

UPM and Sappi say the graphic paper venture would operate as an independent company which would be managed internally with resources and decisions agreed within shareholders boundaries.

The Joint Venture has been adopted in order to “rationalise” supply in what UPM calls an industry “burdened by declining demand” as well as structural overcapacity, and high energy costs.

Massimo Reynaudo, president and chief executive officer of UPM, says: "The proposed Joint Venture represents a decisive response to the structural changes in the European graphic paper industry. It would offer a path to strengthen the resilience of the industry and provide long-term commitment and supply security to graphic paper customers.”

Steve Binnie, chief executive officer for Sappi, adds: “Sappi is very excited by the potential that this joint venture, if approved, will bring.

"We have been searching for a solution to secure a long-term profitable future for our European business. This innovative partnership with UPM will deliver a focused business, bringing the best assets and people together to create a strong future which can ensure sustained support for our customers and can also ensure that the European manufacturing base is protected.”

The news comes after a raft of announcements by both Sappi and UPM within the past year including a number of price increases which have been spread over the past five years. Last year Print Monthly got to visit Sappi’s Gratkorn Mill in Austria, where the company discussed some of its changing focus and priorities.

Recently Sappi has shut down a paper machine at its mill in Kirkniemi which reduced its annual production capacity of coated mechanical paper.

Similarly, UPM has halted paper in production at its Kaukus mill, also in Finland, which affected 220 jobs as coated mechanical paper production was shifted to its Rauma mill.

Yesterday UPM announced that it will discontinue the production of label materials in Nancy, France, which it first planned in September this year. The change will affect 79 employees, leading to a statement from the company which reads: “UPM offers support to employees to alleviate the effects of the staff reductions”.

Sappi cites the reason for the venture as the “erosion” of the graphic paper market alongside overcapacity and low utilisation rates of assets. The rising costs of energy in Europe, recent trade tensions, and tariffs have all been cited as causing disruption to trade flows and resulted in increased Asian exports to the European Union (EU).

The new Joint Venture, which is seen as a way of creating a more “efficient, adaptable, and sustainable graphic paper business", will include the entire UPM Communication Papers business as well as Sappi’s graphic paper business in Europe. The Joint Venture will be owned equally by the two companies with a 50/50 split.

The venture is speculated to create annual synergies of about €100m (£87.4m) through asset optimisation, portfolio rationalisation, logistics optimisations, as well as sourcing operational and efficiency improvements.

Marco Eikelenboom, chief executive officer of Sappi Europe, comments: “To remain competitive and sustainable in the long term, consolidation is needed. Consolidation will contribute to a more robust and resilient European graphic paper industry, safeguarding security of domestic supply for the printing sector.”  

The planned perimeter of the venture includes eight of UPM’s paper mills in Finland, Germany, UK, and the USA. Sappi would contribute four mills throughout Finland, Germany, Austria, and the Netherlands.

Based on the letter of intent, UPM and Sappi’s contributions would equate to a combined enterprise value of €1,420m (£1,196m), excluding the value of expected synergy benefits. The enterprise value of UPM Communication Papers is €1,100m (£961.6m) while Sappi Europe is valued at €320m (£279.7m). UPM would receive cash proceeds of €613m (£535.9m) and 50% shareholding in the Joint Venture, while Sappi would receive cash proceeds of €139m (£121.5m) and 50% shareholding in the venture.

After the closing of the transaction, the Joint Venture is expected to raise debt to fund the purchase prices payable to both companies leading to independent finance by the venture, meaning it will be able to secure additional funding in the future without any recourse to the shareholders.

Discussing the impact of the deal, Binnie says: “The proposed joint venture provides a unique opportunity to unlock value for our shareholders. The transaction delivers on Sappi’s Thrive strategy to reduce our direct exposure to the graphic paper segment and enables us to reposition our portfolio towards higher-growth, higher value segments.

"Sappi’s direct sales volume exposure to the graphic paper segment will decrease to below 20% after the transaction is completed and our 50% shareholding in the joint venture is anticipated to generate more value than the standalone Sappi graphic paper business. Ultimately the transaction will enable Sappi to reduce debt in the medium term and in the future the cash dividends from the joint venture will further lower debt.”  

A full breakdown of UPM’s financial benefits, valuations, and breakdowns can be found on its website along with a link to a webcast and conference call for analysts and investors which took place at 14:00 EET (12pm GMT) today and will be available to view for 12 months after the call. The link to the webcast can also be found here.

Concluding his thoughts, Reynaudo adds: “UPM Communication Papers has reliably delivered value to customers as well as UPM shareholders. It has been the foundation upon which UPM has expanded its broad portfolio of sustainable material solutions. The planned Joint Venture would provide the best future for the UPM Communication Papers business, focus UPM’s portfolio, and strengthen our balance sheet.”

Negotiations regarding the details of the deal are apparently ongoing, with definitive agreements expected to be signed during the first half of 2026. The proposed transaction is subject to review by the European Commission and relevant authorities in the US, UK, and China.