Two of the European paper Industry’s heavyweights - Sappi and UPM - have signed a ‘non-binding letter of intent’ to form a non-listed, independent 50/50 joint venture for graphic paper, that would essentially see 12 Paper Mills operating under one roof and a combined annual turnover of well over €3bn (AUD$5.25bn).
If a Joint Venture between Sappi and UPM gets off the ground, it will see 12 large Paper Mills operating under one roof
Whilst the proposal has sparked some customer concerns about ‘potential monopoly issues’, UPM issued a statement pointing to an industry ‘burdened by declining demand, structural over-capacity and high energy costs’, claiming that this JV ‘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’.
Sappi pointed to the same backdrop of declining demand and of a European paper industry under strain, adding that ‘recent trade tensions and tariffs have further disrupted trade flows resulting in increased Asian exports to the European Union’.
Marco Eikelenboom, CEO of Sappi Europe, says: “To remain competitive and sustainable in the long term, consolidation is needed. Consolidation will contribute to a more robust and resilient European graphic paper industry, safeguarding security of domestic supply for the printing sector.”
“The proposed joint venture provides a unique opportunity to unlock value for our shareholders.”
Massimo Reynaudo, UPM President and CEO adds: “This JV would offer a path to strengthen the resilience of the industry and provide long-term commitment and supply security to graphic paper customers.”
UPM and Sappi are large suppliers into the Australian and New Zealand region, so the Australasian Paper Industry Association (APIA) has initially welcomed the news and confirmed that it will be following developments in the proposed JV closely, throughout the year ahead.
Moving forward from a letter of intent to actual establishment of a Joint Venture between the two companies, first demands approval from Sappi’s shareholders, but the proposed deal will also be subject to review by the European Commission and relevant merger control and approval in other jurisdictions including the UK, US and China. The expected timeline is for the deal to close by the end of 2026.
Sappi and UPM would essentially need to sell their respective businesses and assets to the newly formed JV with a combined enterprise value of €1420 million (AUD$2.5bn), excluding the value of the expected synergy benefits.
