#Finland #Helsinki #UPM #Sappi #GraphicPaper

UPM and Sappi Join Forces in Graphic Paper Venture

In a transformative move for the graphic paper industry, UPM and Sappi have announced the formation of a joint venture following the signing of a definitive agreement. This collaboration intends to consolidate their respective businesses in Europe, marking a pivotal shift in the competitive landscape of the graphic paper sector.

Strategic Importance of the Joint Venture

This newly established entity will encompass UPM's Communication Papers and Sappi's graphic paper divisions in Europe, operating under a 50/50 ownership structure. As Massimo Reynaudo, President and CEO of UPM reiterates, this partnership is not just a milestone in corporate collaboration but also a critical step to ensure long-term supply continuity and commitment to their customers.

By pooling resources, expertise, and infrastructure, UPM and Sappi are set to create a more resilient operational framework that can better withstand the market's evolving demands. The venture is designed to enhance efficiencies and create annual synergies estimated at approximately €100 million by optimizing assets, refining product portfolios, and improving sourcing strategies.

Financial Backing Secured

Both companies have obtained substantial financing for the joint venture. An external financing package of €600 million, along with a committed revolving credit of €100 million, has been secured, supported predominantly by Citi and Nordea. These financial arrangements are crucial for ensuring that the venture is adequately funded and can meet its operational liquidity needs from the get-go.

The joint venture aims to raise additional capital at its onset to facilitate operational transactions between UPM and Sappi. After establishing the necessary capital structure, the joint venture will prioritize the settlement of its shareholder loans before any profit distributions.

Valuation and Contributions

The combined enterprise value of the joint venture is projected to reach €1.42 billion. UPM's contributions are valued at €1.1 billion, while Sappi's business is estimated at €320 million. In exchange for their contributions to the joint venture, UPM will receive a cash payment of €475 million, in addition to preferred shareholder loans valued at €98 million.

Despite the looming challenges posed by the declining graphic paper markets in Europe and North America, this strategic alliance will enable UPM to concentrate on growth markets while safeguarding its financial health. The transaction is anticipated to yield significant long-term benefits, helping both UPM and Sappi free themselves from the pressures of declining market segments.

Next Steps and Future Outlook

As progress continues, the forthcoming phases of the joint venture will see the establishment of operational readiness and the finalization of all legal and regulatory requirements. Until the joint venture is officially operational, both UPM Communication Papers and Sappi's European divisions will maintain independent operations.

With regulatory approval required from various jurisdictions, including the European Commission and authorities in the US and China, the joint venture's success hinges on a collective effort to navigate compliance hurdles effectively. However, initial assessments of the transaction indicate a significant potential for profit improvement and long-term viability.

In three years' time, after achieving the integration and synergy objectives, either partner will have the option to divest their stake in the joint venture, laying the groundwork for further strategic maneuvers in the evolving paper industry landscape.

Conclusion

The UPM and Sappi joint venture stands as a beacon of strategic collaboration in a dwindling market. By leveraging their strengths and collective resources, UPM and Sappi are poised to create a more agile and vibrant entity, dedicated to serving the graphic paper needs across Europe, thus reshaping the future of the sector as a whole.