South Africa’s Sappi offers concessions to save $1.6 billion transatlantic merger that would fold UPM’s US paper business into Europe’s largest producer

The proposed transaction would create a separately financed company jointly owned by Sappi and UPM, bringing together their graphic-paper operations in Europe with UPM’s communication-paper business in the United States.

The resulting company would become Europe’s largest producer in the sector while selling communication-paper products to customers across more than 120 countries.

UPM will contribute assets valued at €1.1 billion ($1.24 billion), including its communication-paper operations in Europe, Britain and the United States. Sappi will contribute a European business valued at €320 million ($360 million).

The two companies announced their proposed remedies⁠ on November 5 after the European Commission raised concerns that the combination could reduce competition in markets for paper used in magazines, books and promotional materials.

The remedies are intended to secure regulatory approval and do not mean that the Commission has cleared the transaction.

The proposed commitments include measures to optimise production capacity for certain European paper grades and disclose relevant capacity information.

Sappi and UPM have also proposed commercial safeguards for customers, alongside investments in decarbonisation, electrification and energy efficiency.

The companies did not announce plans to sell a mill or divest a substantial business. Any measures accepted by the European Commission would be implemented by the joint venture after it has been established.

The Commission is expected to consult competitors and customers before determining whether the proposals sufficiently address its concerns.

Reuters reported that the concessions extended the regulator’s decision deadline to January 8, 2027. Sappi and UPM have said they expect a decision around the end of 2026 or shortly afterwards.

The regulator has not made a final determination.

The European Commission opened an in-depth investigation after identifying possible competition problems in the supply of coated mechanical and coated wood-free paper.

Both products are widely used to print magazines, books, catalogues and advertising materials.

In August, the Commission issued a formal statement of objections warning that the joint venture could acquire enough market power to raise prices or reduce product quality.

It was also unconvinced that the proposed savings, environmental improvements and supply benefits would be sufficient to outweigh the possible damage to competition.

Sappi and UPM reject the suggestion that their combination would harm customers.

The companies argue that demand for graphic paper is in structural decline as readers, advertisers and publishers continue moving towards digital platforms. Industry sales fell by 7% year on year during the third quarter of 2026, according to the companies.

They say combining the businesses would allow capacity to be adjusted more efficiently while preserving a reliable supply of paper for European customers.

Although much of the regulatory scrutiny concerns Europe, the proposed company would have a direct American operating presence.

UPM plans to transfer its entire Communication Papers division, including the Blandin mill in Grand Rapids, Minnesota.

The Finnish group would also contribute its Caledonian mill in Scotland and plants or production lines in Germany and Finland.

Sappi’s contribution includes mills in Austria, Germany, the Netherlands and Finland. Sappi’s North American paper operations are not part of the transaction.

The correct framing is therefore that the joint venture would absorb UPM’s US communication-paper business, not Sappi’s American operations.

UPM and Sappi would each own 50% of the new company despite contributing businesses with substantially different enterprise values.

The €1.42 billion figure represents the combined enterprise value of the assets being transferred. It is not the amount Sappi is paying UPM, nor is it fresh capital being invested entirely in the United States or Europe.

UPM’s contributed business is valued at €1.1 billion, while Sappi’s assets are valued at €320 million.

Under the definitive agreement, Sappi is expected to receive €90 million ($101 million) in cash, a €10 million ($11 million) shareholder-loan receivable and half of the joint venture’s equity.

UPM is expected to receive €475 million ($535 million) in cash, shareholder-loan receivables with an estimated combined value of €98 million ($110 million), and the other half of the equity.

Those amounts remain subject to customary adjustments when the transaction closes.

The parties have arranged €600 million ($676 million) in external financing and a €100 million ($113 million) revolving credit facility. US banking group Citi and Finland’s Nordea fully underwrote both facilities.

The joint venture is expected to generate approximately €100 million ($113 million) in annual synergies through changes to logistics, asset utilisation, sourcing and the product portfolio.

The transaction would allow Johannesburg-headquartered Sappi to separate much of its European graphic-paper business from its other operations while retaining a 50% economic interest.

Sappi would continue to operate its packaging, speciality-paper, dissolving-pulp and other businesses outside the joint venture.

Approval would also transfer €411 million ($463 million) of net pension and other liabilities connected with the contributed operations to the new company, based on the definitive agreement’s figures.

The venture would operate independently and finance itself without recourse to Sappi or UPM, apart from the agreed shareholder loans.

If the Commission rejects the concessions, the companies may have to offer stronger remedies, restructure the transaction or abandon the combination.

For now, the latest development is that Sappi and UPM have moved from defending the deal to offering formal commitments intended to prevent Europe’s competition regulator from blocking it.