UPM and Sappi sign €1.42B graphic paper joint venture deal

UPM and Sappi signed a definitive agreement Wednesday to combine their European graphic paper operations into a 50/50 joint venture valued at €1.42 billion, a move to consolidate a market facing structural decline from digitalization.

"The definitive agreement is an important milestone in creating the planned Joint Venture that we see as a necessary step to secure long-term commitment and supply continuity for graphic paper customers in Europe," Massimo Reynaudo, president and CEO of UPM, said.

UPM will contribute its Communication Papers business valued at €1.1 billion, while Sappi's European graphic paper unit is valued at €320 million. At closing, UPM will receive €475 million in cash, a €98 million shareholder loan receivable and 50 percent of the joint venture's equity. Sappi will receive €90 million in cash, a €10 million shareholder loan and the other half of the equity. The parties have secured €600 million in external financing and a €100 million revolving credit facility, both underwritten by Citi and Nordea.

The joint venture is expected to generate about €100 million in annual synergies through asset optimization, portfolio rationalization and sourcing efficiencies. For UPM, the deal removes direct exposure to the declining European and North American graphic paper markets and is expected to improve its profitability margins and balance sheet. The transaction requires approval from Sappi shareholders and merger clearance from the European Commission, US and Chinese authorities, with final resolutions expected by the end of 2026.

UPM's Communication Papers unit generated €2.49 billion in sales in 2025, about 26 percent of group revenue, but its comparable EBIT margin of 7.3 percent trailed the group's 9.5 percent. Excluding the unit, UPM's comparable EBITDA margin would have been 14 percent versus 13.6 percent for the full group. The unit employed €891 million in capital and delivered a comparable return on capital employed of 17.8 percent, well above the group's 6.7 percent.

The joint venture will operate as an independent company with its own management and board. Three years after closing, either shareholder may initiate a sale of its stake, providing both parties with a path to eventual exit. UPM also holds an option to sell half of its preferential shareholder loan to Sappi after two years. The transfer of €411 million in net pension and other liabilities to the joint venture will further strengthen UPM's balance sheet, the company said.

The European Commission opened a Phase II investigation into the deal on April 28, reflecting concerns about market concentration in an already-consolidated industry. UPM said it is engaging "openly and constructively" with regulators. The combined entity would control a substantial share of Europe's graphic paper production capacity, though both companies argue the venture is necessary to ensure long-term supply continuity for customers in a market that has lost about a quarter of its capacity over the past decade.

This article is for informational purposes only and does not constitute investment advice.