Helsinki (News release) -- UPM-Kymmene Corporation ("UPM") and Sappi Limited ("Sappi") have signed a non-binding letter of intent to form a graphic paper joint venture ("the Joint Venture"). The Joint Venture would include the entire UPM Communication Papers business and Sappi's graphic paper business in Europe. The Joint Venture 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 proposed Joint Venture represents a decisive response to the structural changes in the European graphic paper industry. It would offer a path to strengthen the resilience of the industry and provide long-term commitment and supply security to graphic paper customers," says Massimo Reynaudo, President and CEO of UPM.

"UPM Communication Papers has reliably delivered value to customers as well as UPM shareholders. It has been the foundation upon which UPM has expanded its broad portfolio of sustainable material solutions. The planned Joint Venture would provide the best future for the UPM Communication Papers business, focus UPM's portfolio and strengthen our balance sheet," says Reynaudo.

Securing long-term resilience and sustainability

The transaction would create a more efficient, adaptable and sustainable graphic paper business. It would create a structurally competitive cost base and supply security for the European and global customers.

By strategic reallocation of production volumes to the most efficient paper machines, the Joint Venture would achieve more sustainable capacity utilization and stronger operational performance, while continuing to serve customers with a broad portfolio of graphic paper products.

Overall, the Joint Venture would rationalize supply in an industry burdened by declining demand, structural overcapacity and high energy costs. It 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.

UPM Communication Papers has already today an ambitious climate action roadmap to reduce product emissions by up to 70% by 2030, supporting customers in achieving their climate targets. The Joint Venture would further enhance these opportunities. By optimizing capacity utilization, enhancing operational efficiencies and continuing to invest in decarbonization, the Joint Venture could reduce its overall climate impact, helping to advance the EU's Clean Industrial Deal objectives.

Transaction overview and terms

The proposed Joint Venture would be owned 50/50 by UPM and Sappi and operate as an independent company.

The planned perimeter of the Joint Venture would include:

- The entire UPM Communication Papers business, including eight UPM Communication Papers' paper mills at Kymi, Rauma (including UPM RaumaCell) and Jämsänkoski (paper line 6) in Finland; Nordland (paper lines 1 and 4), Augsburg, Schongau in Germany; UPM Caledonian paper mill in the UK and Blandin paper mill in the USA; and

- Sappi's European graphic paper business, including the following four graphic paper mills: Kirkniemi in Finland, Ehingen in Germany, Gratkorn in Austria and Maastricht in the Netherlands.

The Joint Venture is expected to create annual synergies estimated at about €100 million through asset optimization, product portfolio rationalization, logistics optimizations, sourcing efficiency improvements and operational efficiencies.

Based on the letter of intent

- UPM and Sappi would contribute their respective businesses and assets to the Joint Venture with a combined enterprise value of €1,420 million, excluding the value of expected synergy benefits.

- UPM Communication Papers business is valued at €1,100 million (enterprise value). UPM would receive cash proceeds of €613 million and 50% shareholding in the Joint Venture.

- Sappi's European business is valued at €320 million (enterprise value). Sappi would receive cash proceeds of €139 million and 50% shareholding in the Joint Venture.

At the closing of the transaction, the Joint Venture would raise debt to fund the purchase prices payable to Sappi and UPM respectively. The Joint Venture would be independently financed and to the extent it would require additional funding in the future, it shall be without any recourse to the shareholders.

The Joint Venture would distribute dividends to its two shareholders according to its financial performance and standing.

The establishment of the Joint Venture would create a sustainable standalone business that ultimately will provide divestment flexibility for both shareholders. Three years after closing, with the Joint Venture expected to have completed the integration and realized the synergies, either shareholder may initiate a divestment of their shareholding.

Impact of the transaction on UPM financials

The financial benefit for UPM at closing would include the €613 million cash payment to UPM by the Joint Venture, €406 million transfer of pension liabilities to the Joint Venture and UPM's share (50%) of the Joint Venture. The valuations and financial impact of the transaction are estimates at the time of the letter of intent, and subject to customary adjustments.

The valuation of UPM Communication Papers business at €1.1 billion is equal to a multiple of 4.6x EBITDA of last reported 12 months (Q4/2024-Q3/2025).

The UPM Communication Papers assets to be transferred to the Joint Venture represent less than 10% of UPM's total assets.

The ownership in the Joint Venture would be accounted for using the equity method.

The transaction is expected to have a positive impact on UPM's profitability margins (EBIT % of sales), balance sheet and leverage. UPM would also achieve a more focused business portfolio operating on growth markets and would no longer have direct sales exposure to the declining European and North American graphic paper markets.

The table below summarizes the key figures of UPM Group and UPM Communication Papers, and UPM Group excluding the UPM Communication Papers.

€ million	UPM Group 2024	UPM Communication Papers 2024	UPM excl. UPM Communication Papers 2024
Sales	10,339	2,953	7,902
Comparable EBITDA	1,734	344	1,390
% of sales	16.8	11.6	17.6
Operating profit	604	190	414
% of sales	5.8	6.4	5.2
Comparable EBIT	1,224	273	951
% of sales	11.8	9.3	12.0
Capital employed	15,452	1,125	14,328 1)
Comparable ROCE, %	8.2	23.8	7.0

€ million	UPM Group Q4 2024-Q3 2025	UPM Communication Papers Q4 2024-Q3 2025	UPM excl. UPM Communication Papers Q4 2024-Q3 2025
Sales	9,976	2,602	7,843
Comparable EBITDA	1,365	241	1,124
% of sales	13.7	9.3	14.3
Operating profit	255	30	225
% of sales	2.6	1.1	2.9
Comparable EBIT	984	180	804
% of sales	9.9	6.9	10.3
Capital employed	14,292	986	13,306 1)
Comparable ROCE, %	6.9	16.9	6.1

1) excl. UPM Communication Papers operating capital employed

The tables show UPM key figures as reported and excluding UPM Communication Papers. The figures do not include the impact of forming the joint venture, any transaction costs, synergies or dis-synergies or project costs.

Transaction subject to merger control and other conditions

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. The definitive agreements require the completion of external financing agreements, Sappi shareholder approval and other conditions.

The proposed transaction is subject to review by the European Commission and the relevant merger control and approval by the authorities in other jurisdictions such as the US, UK and China. The parties are committed to working with the regulatory authorities throughout the review process.

It is currently expected that the closing would take place by the end of 2026, subject to regulatory approvals and other closing conditions. The Joint Venture would become operational upon closing.

UPM Communication Papers and Sappi's European graphic paper business will continue to operate as separate and independent companies and manage their respective businesses until the closing of the intended Joint Venture according to the satisfaction of all legal and regulatory requirements.