#Finland #Helsinki #UPM #Sappi #Graphic Paper

UPM and Sappi to Form a Graphic Paper Joint Venture

UPM-Kymmene Corporation and Sappi Limited have taken a significant step towards reshaping the graphic paper market in Europe by signing a non-binding letter of intent to establish a joint venture. This collaboration aims to merge UPM's Communication Papers business with Sappi's graphic paper operations, creating a 50/50 owned entity that will function independently.

The Rationale Behind the Joint Venture

The move comes in response to the ongoing structural changes within the European graphic paper industry, which has been facing challenges such as declining demand, overcapacity, and high energy costs. Massimo Reynaudo, President and CEO of UPM, highlighted that this joint venture will serve as a robust answer to these issues, ultimately enhancing the resilience of the industry while assuring customers of supply security.

Reynaudo emphasized that UPM's Communication Papers division has consistently delivered value not only to its customers but also to its shareholders. He believes that this joint venture represents an opportunity to focus on UPM's diverse portfolio of sustainable solutions, driving long-term growth and improving the company's financial stability.

Goals of the New Venture

The joint venture's creation is anticipated to lead to an adaptable and sustainable graphic paper business, streamlining production capabilities across the merged firms. By reallocating production volumes to the most efficient paper machines, the joint venture aims to achieve enhanced capacity utilization and stronger operational performance, ensuring a reliable supply to its customers.

With the increasing pressures of market dynamics, the joint venture is also designed to tackle excess capacity in the industry and the heavy burden from fluctuating energy prices, enabling it to maintain competitive pricing and foster a stable market.

Climate Action Commitment

An essential aspect of this initiative is the joint commitment to climate action. UPM Communication Papers has laid out an ambitious roadmap to cut product emissions by up to 70% by 2030. This goal aligns with broader EU sustainability objectives, enhancing the joint venture's appeal to environmentally conscious customers and stakeholders.

By operationalizing new efficiencies and further investments in decarbonization, the venture aspires to significantly reduce its overall climate footprint, thus propelling both UPM and Sappi closer to their sustainability targets.

Overview of the Joint Venture Terms

According to the letter of intent, the new venture will include significant assets from each company:

• - UPM's Communication Papers Division: This includes various paper mills in Finland, Germany, the UK, and the USA, consolidating a robust operational base.
• - Sappi's European Graphic Paper Operations: Incorporating vital assets like the Kirkniemi, Augsburg, and Gratkorn mills creates a diverse product offering and operational synergy.

Notably, the joint venture is projected to generate annual synergies of approximately €100 million by optimizing assets, enhancing the product portfolio, and improving logistics and sourcing efficiencies. This consolidation promises to establish a cost-effective foundation that strengthens competitiveness amid global challenges.

At the formation's closing, UPM will receive €613 million in cash proceeds in addition to a 50% stake in the joint venture. Sappi’s contributions will yield €139 million and a similar stake. The operational structure will be designed to allow for future growth and the potential divestment of interests post-integration, showcasing the flexibility afforded to each shareholder.

Future Prospects and Regulatory Review

The execution of this joint venture is contingent upon regulatory approvals, requiring a thorough review by the European Commission and other national authorities in various jurisdictions, including the US and UK. Both companies are committed to working closely with regulators to ensure compliance and anticipate that the joint venture will commence operations by late 2026.

Until then, UPM Communication Papers and Sappi will continue to operate separately, ensuring stability and continuity for their existing operations and stakeholders. This strategic alignment could signify a new era in the graphic paper sector, allowing both companies to harness synergies that drive long-term success.

In conclusion, this planned joint venture between UPM and Sappi represents not only a significant shift in the European graphic paper industry but also reflects a broader commitment to sustainability and operational excellence in a rapidly evolving market.