Sappi and UPM have signed of a non-binding letter of intent to form a non-listed, independent 50/50 joint venture for graphic paper, a development which the Australasian Paper Industry Association (APIA) has welcomed.
This JV will bring together Sappi’s European Graphic Paper business with UPM’s Communication Papers business in Europe, the UK and the US.
“Globally the graphic communication paper industry sector is looking to strengthen, and in doing so, provide more reliable and stable supply, and this JV represents steps towards this,” Kellie Northwood, executive director of the APIA, told Print21.
“This potential partnership, or at this stage, a partnership exploration, is important to stabilise the supply of graphic communications globally, but also to our region.
“With UPM and Sappi being large suppliers into the Australian and New Zealand region, we will follow the developments throughout the year ahead.
“Both companies are also major industry partners across the Visual Media Association (VMA) and the APIA, with sustainability data, legislative inputs from across the EU and specification insights. We wish them well in their exploration and offer support where appropriate.”
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 2026 and expect to close the proposed transaction by the end of the year, once all conditions precedent are fulfilled.
“The proposed joint venture represents a decisive response to the structural changes in the European graphic paper industry, offering a path to strengthen its resilience and provide long-term commitment and supply security to customers,” said Massimo Reynaudo, president and CEO of UPM.
Steve Binnie, CEO of Sappi, said he is very excited by the potential that this joint venture, if approved, will bring.
“We have been searching for a solution to secure a long-term profitable future for our European business. 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 and can also ensure that the European manufacturing base is protected,” Binnie explained.
“The proposed joint venture provides a unique opportunity to unlock value for our shareholders. The transaction delivers on Sappi’s Thrive strategy to reduce our direct exposure to the graphic paper segment and enables us to reposition our portfolio towards higher-growth, higher value segments.
"Sappi’s direct sales volume exposure to the graphic paper segment will decrease to below 20 per cent after the transaction is completed and our 50 per cent shareholding in the JV is anticipated to generate more value than the standalone Sappi graphic paper business.
“Ultimately, the transaction will enable Sappi to reduce debt in the medium term, and in the future the cash dividends from the JV will further lower debt.”
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.
This significant erosion has 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) in Europe. Recent trade tensions and tariffs have further disrupted trade flows resulting in increased Asian exports to the European Union.
“To remain competitive and sustainable in the long-term, consolidation is needed,” said Marco Eikelenboom, CEO of Sappi Europe.
“Consolidation will contribute to a more robust and resilient European graphic paper industry, safeguarding security of domestic supply for the printing sector.”
Sappi and UPM will 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.
At closing the JV will 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.
During the transition phase, both Sappi and UPM will provide relevant operational and administrative support to the JV to ensure it can operate optimally.