Paper and pulp manufacturer Sappi and Finland-based material solutions company UPM-Kymmene Corporation have signed a nonbinding letter of intent to combine their European graphic paper businesses into a non-listed, independent 50:50 joint venture (JV).

By consolidating the assets, the JV aims to deliver at least €100-million in yearly synergies, strengthen supply security for customers and improve industry resilience.

This JV will bring together Sappi’s European Graphic Paper business with UPM’s Communication Papers business in Europe, the UK and the US.

The transaction will be subject to the fulfilment of a number of regulatory and other conditions, including shareholder approval.

The parties intend signing definitive agreements during the first half of the 2026 calendar year and expect to close the proposed transaction by the end of next year, once all conditions precedent are fulfilled.

During a media presentation on December 4, Sappi CEO Steve Binnie explained that, after the transaction, Sappi’s direct sales volume exposure to the graphic paper segment would reduce to less than 20%, adding that the JV would create a sustainable standalone business that would provide divestment flexibility into the future.

Binnie explained that the proposed transaction responded to the company’s Thrive strategy, allowing it to meet the key strategic priorities of reducing direct exposure to graphic paper markets, unlocking the value of its European graphic paper assets and significantly reducing debt and strengthening the balance sheet.

The launch of this proposed JV takes place against a backdrop of sustained structural decline in demand within the graphic paper market alongside overcapacity and low utilisation rates of assets.

Sappi, in a media release, explained that significant erosion had been caused by a number of factors including a structural shift toward digital media, declining print advertising revenues, falling newspaper and magazine circulations and the rapid adoption of electronic media and workflows.

This deterioration has been further intensified by rising costs – in particular energy costs – in Europe. Recent trade tensions and tariffs have further disrupted trade flows resulting in increased Asian exports to the EU.

“We've been searching for a solution to secure a long-term profitable future for our European graphic paper business, and if approved, this proposed innovative partnership with UPM will deliver a focused, new company bringing the best assets and people together to create a strong future which can ensure security of supply for the European printing industry and sustain support and service for our European customers.

“It further ensures that the European manufacturing base is protected and, importantly, will maximise the value realisation of our European graphic paper assets,” Binnie said during the presentation.

Sappi noted in the media release that there were key benefits from the consolidation of Sappi and UPM’s graphic paper assets.

The company explained that, by strategically reallocating production volumes to the most efficient paper machines, the JV would achieve more sustainable capacity utilisation and stronger operational performance, while continuing to serve customers with a broad portfolio of European graphic paper products.

Additionally, the operational synergies created through the JV – which are anticipated to be at least €100-million a year once the transaction is implemented – provide a pathway to realise greater value from the combined asset base, delivering enhanced profitability and stronger cash flow generation compared with what the independent operations could achieve on their own, to the benefit of all stakeholders including shareholders.

Moreover, by optimising capacity utilisation, enhancing operational efficiencies and continuing to invest in decarbonisation, Sappi said the JV could reduce its overall climate impact, helping to advance the EU’s Clean Industrial Deal objectives.

The proposed transaction will be structured to enable the parties to respectively contribute assets to the newly formed JV, with Sappi and UPM as founding shareholders and each holding 50% of the issued shares.

Sappi and UPM will sell their respective businesses and assets to the newly formed JV with a combined enterprise value of €1.42-billion, excluding the value of the expected synergy benefits.

At closing, Sappi said the JV would raise debt to fund the purchase prices payable to Sappi and UPM, respectively. The JV’s dividend policy will be to distribute all excess cash to its shareholders.

The Sappi business is valued at €320-million which, based on earnings before interest, taxes, depreciation and amortisation (Ebitda) of €64-million for the 2025 financial year represents a 5x multiple.

Sappi noted that it will transfer pension and other liabilities of €53-million and net assets valued at €267-million to the JV. In return, Sappi said it would receive cash of €139-million and 50% shareholding in the JV.

Binnie said the cash consideration of €139-million that the company would receive would enable Sappi to significantly reduce debt in the medium term.

“On top of that, we will get cash dividends from the JV, and that will further enable us to reduce debt over time,” said Binnie.

“The European packaging and speciality papers business remains part of Sappi and our focus on this segment will be to improve profitability.”

The UPM business is valued at €1.1-billion, which represents a 4.6x multiple of the Ebitda for the 12 months to September 30.

UPM will transfer pension and other liabilities of €360-million and net assets of €740-million to the JV. In return, UPM will receive cash of €613-million and 50% shareholding in the JV.

Sappi will contribute its Gratkorn Mill, in Austria; Ehingen Mill, in Germany; Maastricht Mill, in the Netherlands; and Kirkniemi Mill, in Finland to the JUV, while Sappi Europe will supply the JV with wood.

UPM will contribute its Augsburg and Schongau mills, as well as its Nordland paper lines 1 and 4, in Germany to the JV. It will also contribute its Rauma Mill, including UPM RaumaCell asset, its Kymi Mill and its Jämsänkoski paper line 6, in Finland, as well as its Caledonian and Blandin mills, in the UK and US, respectively, to the JV.

During the transition phase, both Sappi and UPM will provide relevant operational and administrative support to the JV to ensure it can operate optimally.