UPM-Kymmene Corporation and Sappi Limited have signed a non-binding letter of intent to form a graphic paper joint venture. The JV would include the entire UPM Communication Papers business and Sappi’s graphic paper business in Europe, the companies announced in a press statement. The JV would be owned 50/50 by UPM and Sappi. It would operate as an independent company, managing its own operations, resources, and decisions within agreed shareholder boundaries.
The planned transaction would encompass UPM‘s entire Communication Papers business, including eight paper mills at Kymi, Rauma (including UPM RaumaCell) and Jämsänkoski (PM 6) in Finland; Nordland (PM 1 and 4), Augsburg and Schongau in Germany; the UPM Caledonian paper mill in the UK and Blandin paper mill in the USA.
From Sappi’s side the transaction will cover the company’s European graphic paper business, including its four graphic paper mills: Kirkniemi in Finland, Ehingen in Germany, Gratkorn in Austria and Maastricht in the Netherlands.
Under the planned structure, UPM and Sappi would contribute their respective businesses and assets to the Joint Venture with a combined enterprise value of €1.42bn, excluding the value of expected synergy benefits. UPM‘s Communication Papers business is valued at €1.1bn (enterprise value). UPM would receive cash proceeds of €613m and 50 per cent shareholding in the Joint Venture. Sappi’s European business is valued at €320m (enterprise value). Sappi would receive cash proceeds of €139m and 50 per cent shareholding in the Joint Venture.
Negotiations regarding the details of the Joint Venture are ongoing, and the parties expect the definitive agreements to be signed during the first half of 2026. UPM and Sappi currently expect the closing to take place by the end of 2026, subject to regulatory approvals and other closing conditions.
Major market share in LWC and fine paper market segments
The planned joint venture is “a decisive response to the structural changes in the European graphic paper industry”, Sappi Limited CEO Steve Binnie and UPM President and CEO Massimo Reynaudo say in a joint statement. The planned combination of the two companies’ production capacities for printing and writing paper represents a radical change in the European market. In the market for woodfree coated paper and uncoated paper, whose total demand in Europe can be estimated at around 8.5 million t in 2025, the two companies together have a significant market share. Combined coated and uncoated fine paper capacities at UPM and Sappi total approximately 2.8 million tpy, not including volumes dedicated to packaging and label paper grades.
However, it is primarily in the market for coated mechanical paper that the planned joint venture will consolidate a substantial part of the production capacities in Europe. UPM and Sappi have a combined production capacity of around 1.8 million tpy for LWC and MWC, with an estimated total European demand of around 2.4 million t, plus around 500,000 t of net exports. Despite the closures at UPM Kaukas and Sappi Kirkniemi, there is still overcapacity in the market for mechanical coated paper. Following these closures, which are scheduled to be completed by the end of the year, around 3.2 million tpy of production capacity will still be available in Europe.
The markets for printing and writing paper in Europe have declined sharply this year. Demand fell by around 9 per cent across all grades. The market for woodfree uncoated paper has been least affected, with demand falling by only around 6 per cent. Above-average declines were recorded in the market segments for coated and uncoated mechanical paper, where demand fell by 12 per cent in each case.
