This story was originally published on Packaging Dive. To receive daily news and insights, subscribe to our free daily Packaging Dive newsletter. South Africa-based Sappi Ltd. and Finland-based UPM-Kymmene Corp. announced their intention to combine forces in their European business units to form a joint venture for graphic paper worth an estimated 1.42 billion euros, $1.65 billion. The deal includes a mill in the United States and has broader implications for the North American market. The companies say ...

PresentationI'd now like to hand the conference over to your first speaker today, Steve Binnie, CEO. Please go ahead.Good day, and thank you for standing by. Welcome to the Special Investor Call to discuss the transaction between Sappi and UPM. [Operator Instructions] Please be advised today's conference is being recorded.Stephen BinnieCEO & Executive Director Good day, everybody. Thanks for joining. As always, we've got a presentation that I'm going to be talking through, and I will be calling out the page ...

Summary of the Investor Call on Sappi and UPM Joint Venture Industry and Company Involved - **Industry**: European graphic paper industry - **Companies**: Sappi and UPM Core Points and Arguments 1. **Joint Venture Proposal**: Sappi and UPM have signed a non-binding letter of intent to create a joint venture combining their European graphic paper businesses, with each company owning 50% of the venture [2][3] 2. **Synergy Estimates**: The joint venture is expected to achieve at least €100 million in synergies through savings in fixed and variable costs [3][7] 3. **Strategic Alignment**: This transaction aligns with Sappi's Thrive strategy, aiming to unlock significant value for shareholders, lower debt, and increase profits [3][4] 4. **Reduced Exposure**: Post-transaction, Sappi's exposure to graphic paper markets will decrease to about 20% of overall volumes, allowing the company to focus on packaging and specialty businesses [4][9] 5. **Market Context**: The European graphic paper market has been in structural decline due to digital substitution, with demand down 60% since 2007, leading to excess capacity and rising costs [5][6] 6. **Operational Flexibility**: The joint venture will create a more stable and resilient business, allowing for optimization of the asset portfolio and improved efficiencies [6][7] 7. **Financial Structure**: The enterprise value of the joint venture is estimated at €1.4 billion, with Sappi contributing assets valued at €320 million and pension liabilities of €53 million [10][11] 8. **Debt Management**: The initial structure targets a net debt ratio to EBITDA of 2.5 times, with cash proceeds from the transaction allocated to reducing debt [8][10] 9. **Regulatory Approval**: The transaction requires approval from shareholders and various competition and regulatory authorities, with an estimated timeline of around one year for completion [12][13] 10. **Future Earnings**: The earnings from the joint venture are expected to exceed the current EBITDA of Sappi's standalone European graphic paper business [9][20] Other Important Considerations 1. **Antitrust Confidence**: Sappi expresses confidence in navigating antitrust considerations, citing the industry's decline and excess capacity as factors that may favor approval [17][18] 2. **Cash Payments and Debt Exposure**: UPM will make a larger cash payment to establish the joint venture, but Sappi's exposure to the joint venture's debt is limited to its equity investment [30] 3. **Potential Write-Downs**: There may be write-downs associated with asset closures, but specifics are not yet determined as the joint venture is still in the early stages [28][29] 4. **Shareholder Value**: The joint venture is seen as the best opportunity to maximize value extraction from Sappi's European graphic paper business, with a focus on improving operating rates and profitability [9][14] This summary encapsulates the key points discussed during the investor call regarding the joint venture between Sappi and UPM, highlighting the strategic, financial, and operational implications for both companies and the industry.

Summary of UPM-Kymmene and Sappi Joint Venture Conference Call Industry and Company Overview - **Industry**: Graphic Paper Industry - **Companies Involved**: UPM-Kymmene (OTCPK: UPMK.F) and Sappi Core Points and Arguments 1. **Joint Venture Agreement**: UPM and Sappi have signed a non-binding letter of intent to create a joint venture for a graphic paper company, with both parties owning equal shares [1][2] 2. **Enterprise Value**: The joint venture will have an enterprise value of EUR 1.42 billion, excluding synergies [2] 3. **Financial Benefits for UPM**: UPM expects a financial benefit of approximately EUR 1.1 billion from the transaction, which includes EUR 613 million in cash payments and EUR 406 million in pension liabilities transferred to the joint venture [2][12] 4. **Operational Scope**: The joint venture will encompass 12 paper mills, with UPM contributing 8 mills and Sappi contributing 4 mills [4] 5. **Product Portfolio**: The joint venture will serve all needs of the graphic paper industry, including newsprint and wood-free coated paper, with a significant focus on the European market [5] 6. **Synergies and Efficiency**: Estimated synergies of EUR 100 million per annum are expected from asset optimization, product rationalization, and increased efficiency in sourcing and logistics [7][58] 7. **Sustainability Commitment**: Both companies have strong commitments to sustainability, which will be enhanced through the joint venture [8] 8. **Market Positioning**: The joint venture aims to provide reliable supply in a competitive market facing overcapacity, ensuring long-term viability for the graphic paper industry [9] Additional Important Information 1. **Regulatory Approval**: The transaction is subject to definitive agreements and approval from merger control authorities in Europe and other jurisdictions [4] 2. **Future UPM Profile**: Post-transaction, UPM will focus on renewable fibers, advanced materials, and decarbonization solutions, leading to improved profitability and a stronger balance sheet [17][18] 3. **Growth Potential**: UPM's portfolio has demonstrated a 4.4% CAGR over the past decade, indicating strong growth potential in the future [19] 4. **Debt Structure**: The joint venture will independently raise long-term funding, with no recourse to shareholders, and aims for a leverage ratio of around 2.5 times EBITDA [10][40] 5. **Dividend Distribution**: The joint venture will distribute dividends based on financial performance, with discussions ongoing regarding the timing and amount of initial dividends [11][52] 6. **Pension Transfer**: The pension liabilities of EUR 406 million will be transferred to the joint venture, including any associated assets [57] 7. **Exit Strategy**: Either shareholder can initiate a divestment three years after closing, with various options available for managing the exit process [54] This summary captures the key points discussed during the conference call regarding the joint venture between UPM and Sappi, highlighting the strategic, financial, and operational implications for both companies in the graphic paper industry.