UPM has signed a definitive agreement to form a graphic paper Joint Venture with Sappi, and the parties have secured financing arrangements that will provide a robust financial standing for the Joint Venture. A non-binding letter of intent (LOI) on the transaction was signed on December 4, 2025.

As earlier announced, the planned Joint Venture will include the entire UPM Communication Papers business and Sappi's graphic paper business in Europe. The Joint Venture will be owned 50/50 by UPM and Sappi. It will operate as an independent company, managing its own operations, resources, and decisions within agreed shareholder boundaries.

"The definitive agreement is an important milestone in creating the planned Joint Venture that we see as a necessary step to secure long-term commitment and supply continuity for graphic paper customers in Europe and strengthen the resilience of the entire European graphic paper industry," says Massimo Reynaudo, President and CEO of UPM.

Following this milestone, the parties will start planning to ensure operational readiness of the Joint Venture from day one. Until the closing of the intended Joint Venture according to the satisfaction of all legal and regulatory requirements, UPM Communication Papers and Sappi's European graphic paper business will continue to operate as separate and independent companies.

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

Financing secured for the Joint Venture:

• The parties have secured €600 million of external financing for the transaction as well as a committed revolving credit facility of €100 million to finance the Joint Venture's operational liquidity needs, both facilities fully underwritten by Citi and Nordea.
• At the closing of the transaction, the Joint Venture will raise the agreed debt to fund the cash consideration payable to UPM and Sappi respectively. To ensure adequate equity and balance sheet for the Joint Venture, the parties have agreed that a part of the purchase prices will be financed through shareholder loans as explained below in further detail.
• Except for the shareholder loans, the Joint Venture will be independently financed following the closing, and to the extent it would require additional funding, such financing shall be without any recourse to the shareholders.

Based on the definitive agreement:

• UPM and Sappi will 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). Sappi's European business is valued at €320 million (enterprise value).
• As consideration for its assets contributed to the planned Joint Venture, at closing UPM will receive cash proceeds of €475 million, a receivable for a shareholder loan on preferential terms valued at €88 million, a receivable for an additional shareholder loan valued at €10 million and 50% of the equity of the Joint Venture equal to a book value of €167 million. As part of the transferring business perimeter, €411 million of net pension and other liabilities based on year-end 2025 balance sheet will transfer to the Joint Venture.
• Sappi will receive cash proceeds of €90 million, a receivable of a shareholder loan valued at €10 million and 50% of the equity of the Joint Venture equal to a book value of €167 million.

The purchase prices, cash proceeds and financial impact of the transaction are estimates at the time of the definitive agreement, and subject to customary purchase price adjustments.

The Joint Venture will first repay its shareholder loans to its two shareholders and thereafter distribute dividends according to its financial performance and standing. The parties have agreed that UPM has an option to sell to Sappi half of any outstanding preferential terms shareholder loan two years after closing.

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 shareholdings.

Impact of the transaction on UPM financials

The financial benefit for UPM at closing will consist of the €475 million cash payment to UPM by the Joint Venture, the €98 million shareholder loan receivable and UPM's share (50%) of the Joint Venture. In addition, €411 million of net pension and other liabilities will transfer to the Joint Venture as part of the transferring business perimeter.

The ownership in the Joint Venture will be accounted for using the equity method, below operating profit.

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 UPM Communication Papers.

Transaction subject to merger control and other conditions

The transaction requires among other conditions approval by Sappi Limited's shareholders and is also subject to merger control approval by the European Commission and authorities in other jurisdictions such as the US and China, with final resolutions expected by the end of 2026. The Joint Venture would become operational upon closing. As announced on April 28, 2026, the review of the Joint Venture proceeded to Phase II of EU merger control. UPM continues to engage openly and constructively with the European Commission during the second part of the process.