UPM-Kymmene (OTCPK:UPMK.F) Partnerships / Collaborations Transcript

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.