South African company worth R8 billion teaming up with European giant
South Africa’s Sappi Limited and Finland’s UPM-Kymmene Corporation have signed an agreement to form an independent 50/50 Joint Venture for graphic paper in Europe and the US.
Sappi has agreed to bring its European Graphic Paper business together with UPM’s Communication Papers business in Europe, the UK and the US.
Sappi, which has a market cap of R8 billion, will contribute the following assets: Gratkorn Mill, Austria; Ehingen Mill, Germany; Maastricht Mill, the Netherlands; and Kirkniemi Mill, Finland.
UPM, which has a market cap of €13 billion, will add its Communication Papers business assets, including the Augsburg, Schongau, and Nordland mills in Germany.
It will also include locations in Rauma, Kymi, and Jämsänkoski, Finland; Caledonian, United Kingdom; and Blandin, United States.
The transaction remains subject to several regulatory and other conditions, but the parties expect final resolutions by the end of 2026. The Joint Venture would become operational upon closing.
“We have been searching for a solution to secure a long-term profitable future for our European business,” said Sappi CEO Steve Binnie.
“This innovative partnership with UPM will deliver a focused business bringing the best assets and people together to create a strong future, which can ensure sustained support for our customers.”
The joint venture’s formation comes amid a challenging environment for the graphic paper industry, which is facing pressure from falling demand, high energy costs, and excess production capacity.
Sappi’s big plans
(Headline Image Source: ABB)
To remain competitive and sustainable, Sappi said consolidation is needed and will contribute to a more robust, resilient European graphic paper industry.
Sappi said that the consolidation of its and UPM’s graphic paper assets should enhance operational performance and support more sustainable capacity utilisation on the most efficient paper machines.
It added that the joint venture may be able to reduce overall climate impact in alignment with the EU’s Clean Industrial Deal via improved operational efficiencies and investment in decarbonisation.
Sappi added that the transaction presents the best strategic option to maximise value for Sappi shareholders.
This will be done by combining the parties’ businesses within an integrated platform, which can improve adaptability and secure a structurally competitive cost base.
The potential operational synergies are anticipated to be at least €100 million per annum for the Joint Venture, Sappi said,
It said that the parties will benefit from greater value from the combined asset base than either party could achieve on a standalone basis.
It also addresses Sappi’s key strategic priorities of shifting its mix towards higher-growth, higher-margin segments by reducing its direct graphic paper exposure, reducing debt, and improving its balance sheet.
Sappi’s share of equity-announced income from the Joint Venture is also expected to improve its consolidated EBITDA relative to the standalone EBITDA of the Sappi Contributed Business over time.
The group will also receive a cash consideration as per the deal, which will enable it to reduce offshore debt. Cash dividends from the Joint Venture will help reduce debt in the long run.
“The establishment of the Joint Venture creates a sustainable standalone business that ultimately preserves strategic optionality for Sappi by providing divestment flexibility in the future,” it added.
Loading ...