UPM-Kymmene Corporation and Sappi Limited have taken a major step toward reshaping the European graphic paper landscape by signing a non-binding letter of intent to form a joint venture that would combine the entirety of UPM Communication Papers with Sappi’s European graphic paper operations. The new company, owned equally by both parties, would operate independently with its own governance, financial structure, and strategic decision-making framework.

According to UPM President and CEO Massimo Reynaudo, the proposed joint venture is a strategic response to continued structural decline, excess capacity, and high energy costs affecting the graphic paper sector. “The proposed Joint Venture represents a decisive response to the structural changes in the European graphic paper industry,” Reynaudo said. “It would offer a path to strengthen the resilience of the industry and provide long-term commitment and supply security to graphic paper customers.”

The combined business would manage 12 paper mills across Finland, Germany, the UK, the USA, Austria, and the Netherlands, with production optimized across the most efficient machines. Annual synergies are estimated at €100 million through asset optimization, product portfolio rationalization, logistics reductions, sourcing efficiencies, and improved operational performance.

UPM’s Communication Papers business is valued at €1.1 billion and Sappi’s European graphic paper business at €320 million (enterprise values). Upon closing, the joint venture would raise external debt to fund payments of €613 million to UPM and €139 million to Sappi, with no recourse to the parent companies. The venture is intended to operate as a financially independent entity capable of funding its own development, and after three years, either shareholder may initiate the divestment of its stake.

For UPM, the joint venture would significantly sharpen its strategic focus by reducing exposure to declining graphic paper markets and strengthening profitability. The transaction is expected to improve UPM’s EBIT margins and balance sheet upon closing.

The deal remains subject to detailed negotiations, Sappi shareholder approval, financing arrangements, and regulatory review by authorities in the EU, US, UK, China, and other jurisdictions. The parties expect to sign binding agreements in the first half of 2026, with closing targeted for the end of that year.

Until closing, UPM Communication Papers and Sappi’s European graphic paper businesses will continue operating independently while the companies work with regulators to secure approval for one of the most consequential realignments in Europe’s printing and paper market in decades.