Inside Information: UPM and Sappi have signed a non-binding letter of intent to establish a joint venture for graphic papers
UPM-Kymmene Corporation (“UPM”) and Sappi Limited (“Sappi”) have signed a non-binding letter of intent to establish a joint venture for graphic papers (“Joint Venture”). The Joint Venture would include the entire UPM Communication Papers business and Sappi’s graphic papers business in Europe. UPM and Sappi would own the Joint Venture in a 50/50 ratio. The Joint Venture would operate as an independent company, managing its own operations, resources, and decision-making within the limits agreed by the shareholders.
Securing Long-term Adaptability and Sustainability
The arrangement would create a more efficient, flexible, and sustainable graphic papers business. It would create a structurally competitive cost base and supply security for European and global customers.
By allocating production volumes to the most efficient paper machines, the Joint Venture would achieve more sustainable capacity utilization and stronger operational performance, continuing to serve customers with a wide range of graphic paper products.
The Joint Venture would rationalize supply in an industry burdened by declining demand, structural overcapacity, and high energy costs. It would promote a more balanced and adaptable European graphic paper market and improve the industry’s ability to withstand market challenges and increasing imports into Europe.
UPM Communication Papers has an ambitious climate action program aiming to reduce product-specific emissions by up to 70% by 2030. This supports customers in achieving their climate targets. The Joint Venture would further strengthen these opportunities. By optimizing capacity utilization, improving operational efficiency, and continuing investments in CO2 emission reduction, the Joint Venture could reduce its climate impact, promoting the EU’s Clean Industrial Deal objectives.
Key Highlights and Terms of the Arrangement
The proposed Joint Venture would be 50/50 owned by UPM and Sappi and would operate as an independent company.
The Joint Venture is planned to have transferred to it:
- The entire UPM Communication Papers business, including eight UPM Communication Papers mills: Kymi, Rauma (including UPM RaumaCell), and Jämsänkoski (paper machine 6) in Finland; Nordland (paper machines 1 and 4), Augsburg, and Schongau in Germany; UPM Caledonian in the UK; and Blandin in the USA; and
- Sappi’s European graphic papers 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 estimated annual synergies of approximately EUR 100 million through optimization of production facilities, product portfolio rationalization, logistics optimization, improved procurement efficiency, and operational efficiencies.
According to the letter of intent:
- UPM and Sappi would transfer their aforementioned businesses and assets to the Joint Venture, with an enterprise value of EUR 1,420 million, which does not include the value of the synergies mentioned above.
- The UPM Communication Papers business is valued at EUR 1,100 million (enterprise value). UPM would receive a cash payment of EUR 613 million from the Joint Venture and 50% of the Joint Venture’s shares.
- Sappi’s European business is valued at EUR 320 million (enterprise value). Sappi would receive a cash payment of EUR 139 million from the Joint Venture and 50% of the Joint Venture’s shares.
In connection with the implementation of the arrangement, the Joint Venture would raise debt to finance the purchase prices payable to Sappi and UPM. The Joint Venture would arrange its financing independently, and to the extent it would require additional financing in the future, the shareholders would have no obligation to provide additional financing.
The Joint Venture would distribute dividends based on its financial results and position to its two shareholders.
The establishment of the Joint Venture would create a sustainable independent business, which would offer both shareholders the opportunity for divestment in the future. Three years after the implementation of the arrangement, when the Joint Venture is expected to have completed its integration and achieved synergies, each shareholder could divest its ownership in the Joint Venture.
Impact of the Arrangement on UPM’s Key Figures
UPM’s financial benefit upon completion of the transaction would include a EUR 613 million cash payment from the Joint Venture to UPM, the transfer of EUR 406 million in pension liabilities to the Joint Venture, and UPM’s share (50%) in the Joint Venture. The valuations and financial impacts of the arrangement are estimates at the time of signing the letter of intent and are subject to customary adjustments related to the implementation of the arrangement.
The valuation of the UPM Communication Papers business at EUR 1.1 billion corresponds to 4.6 times EBITDA for the latest reported 12-month period (Q4/2024–Q3/2025).
UPM Communication Papers balance sheet items that would be transferred to the Joint Venture represent less than 10% of UPM’s consolidated balance sheet.
UPM’s share in the Joint Venture would be accounted for using the equity method.
The arrangement is expected to have a positive impact on UPM’s profitability margins (EBIT percentage of sales), balance sheet, and indebtedness. UPM would also achieve a more focused business portfolio in growing markets and would no longer have direct sales to the declining European and North American graphic paper markets.
The table below presents key figures for UPM, UPM Communication Papers, and UPM excluding UPM Communication Papers.
The tables present UPM’s key figures as reported and excluding UPM Communication Papers. The figures do not include the impacts of the Joint Venture’s establishment, transaction costs, synergies or negative synergies, or project costs.
Regulatory Approvals and Other Terms of the Arrangement
Negotiations on the details of the Joint Venture are ongoing, and final agreements are expected to be signed in the first half of 2026. Final agreements are subject to the conclusion of external financing agreements, Sappi shareholder approval, and the fulfillment of other conditions.
The implementation of the proposed arrangement requires merger control approval from the European Commission, as well as regulatory approvals from certain other countries, such as the United States, the United Kingdom, and China. The parties are committed to working with the authorities throughout the approval processes.
Currently, the arrangement is expected to be completed by the end of 2026, subject to obtaining regulatory approvals and the fulfillment of other conditions of the arrangement. The Joint Venture would commence its operations after the implementation of the arrangement.
UPM Communication Papers and Sappi’s European graphic papers businesses will continue to operate as separate and independent businesses and manage their own operations until the implementation of the planned Joint Venture, in accordance with applicable regulations and regulatory requirements.
