UPM and Sappi have signed a non-binding letter of intent to form a graphic paper Joint Venture
UPM-Kymmene Corporation (“UPM”) and Sappi Limited (“Sappi”) have signed a non-binding letter of intent to form a graphic paper joint venture (“the Joint Venture”). The Joint Venture would include the entire UPM Communication Papers business and Sappi’s graphic paper business in Europe. The Joint Venture would be owned 50/50 by UPM and Sappi. It would operate as an independent company, managing its own operations, resources, and decisions within agreed shareholder boundaries.
"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," says Massimo Reynaudo, President and CEO of UPM.
“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,” says Reynaudo.
Securing long-term resilience and sustainability
The transaction would create a more efficient, adaptable and sustainable graphic paper business. It would create a structurally competitive cost base and supply security for the European and global customers.
By strategic reallocation of production volumes to the most efficient paper machines, the Joint Venture would achieve more sustainable capacity utilization and stronger operational performance, while continuing to serve customers with a broad portfolio of graphic paper products.
Overall, the Joint Venture would rationalize supply in an industry burdened by declining demand, structural overcapacity and high energy costs. It would contribute to a more balanced and resilient European market, and make the industry better positioned to withstand market challenges and increasing imports to Europe.
UPM Communication Papers has already today an ambitious climate action roadmap to reduce product emissions by up to 70% by 2030, supporting customers in achieving their climate targets. The Joint Venture would further enhance these opportunities. By optimizing capacity utilization, enhancing operational efficiencies and continuing to invest in decarbonization, the Joint Venture could reduce its overall climate impact, helping to advance the EU’s Clean Industrial Deal objectives.
Transaction overview and terms
The proposed Joint Venture would be owned 50/50 by UPM and Sappi and operate as an independent company.
The planned perimeter of the Joint Venture would include:
- The entire UPM Communication Papers business, including eight UPM Communication Papers’ paper mills at Kymi, Rauma (including UPM RaumaCell) and Jämsänkoski (paper line 6) in Finland; Nordland (paper lines 1 and 4), Augsburg, Schongau in Germany; UPM Caledonian paper mill in the UK and Blandin paper mill in the USA; and
- Sappi’s European graphic paper business, including the following four graphic paper mills: Kirkniemi in Finland, Ehingen in Germany, Gratkorn in Austria and Maastricht in the Netherlands.
The Joint Venture is expected to create annual synergies estimated at about €100 million through asset optimization, product portfolio rationalization, logistics optimizations, sourcing efficiency improvements and operational efficiencies.
Based on the letter of intent
- UPM and Sappi would contribute their respective businesses and assets to the Joint Venture with a combined enterprise value of €1,420 million, excluding the value of expected synergy benefits.
- UPM Communication Papers business is valued at €1,100 million (enterprise value). UPM would receive cash proceeds of €613 million and 50% shareholding in the Joint Venture.
- Sappi’s European business is valued at €320 million (enterprise value). Sappi would receive cash proceeds of €139 million and 50% shareholding in the Joint Venture.
At the closing of the transaction, the Joint Venture would raise debt to fund the purchase prices payable to Sappi and UPM respectively. The Joint Venture would be independently financed and to the extent it would require additional funding in the future, it shall be without any recourse to the shareholders.
The Joint Venture would distribute dividends to its two shareholders according to its financial performance and standing.
The establishment of the Joint Venture would create a sustainable standalone business that ultimately will provide divestment flexibility for both shareholders. Three years after closing, with the Joint Venture expected to have completed the integration and realized the synergies, either shareholder may initiate a divestment of their shareholding.
