Sappi shares surge 9% as nearly R20bn joint venture with Finland's UPM announced

Sappi's shares traded 9.27% higher at R23.71 Thursday afternoon after plans with UPM were announced to combine their European graphic paper operations into a standalone R19.94bn (€1.42bn) joint venture (JV) company.

The share price jump comes despite being well below the R51.76 it traded at a year ago, which reflects the challenges being faced by the global paper and packaging sector: rising costs, shifting consumer demand, stricter sustainability regulations and supply chain disruptions. Demand for graphic paper has been in structural decline for decades.

"The proposed JV represents a decisive response to structural changes in the European graphic paper industry, offering a path to strengthen its resilience and provide long-term commitment and supply security to customers," Sappi's CEO Steve Binnie and UPM President and CEO Massimo Reynaudo said in a joint statement.

"We have been searching for a solution to secure a long-term profitable future for our European business. This partnership with UPM will deliver a focused business bringing the best assets and people together, to ensure sustained support for our customers and also ensure the European manufacturing base is protected," Binnie said in an online presentation.

He said the transaction aligns with Sappi's "Thrive" strategy to reduce exposure to the declining graphic paper segment, and reposition towards higher-growth, higher-value segments. The transaction is subject to competition and other regulatory and shareholder approvals.

Following the deal, Sappi's direct sales volume exposure to graphic paper should decrease to below 20%. The 50% shareholding in the JV is anticipated to generate more value than the standalone Sappi graphic paper business.

Sappi will receive €139 million cash on closing, enabling it to cut debt in the medium term. Additionally, future cash dividends from the JV will contribute to further debt reduction over time.

The JV will include Sappi's European graphic paper business and UPM's Communications Paper Business in Europe, UK and US. UPM, which is listed on the Nasdaq Helsinki stock exchange, will receive €613m cash along with its 50% shareholding in the JV.

The aim is for the JV to operate initially as a non-listed independent company. Sappi and UPM will provide operational and administrative support during the integration period.

The European graphic paper industry faces increasing pressure due to falling demand, high energy costs, excess production capacity, and broader economic challenges. Recent trade tensions and tariffs have further disrupted traditional trade flows, leading to increased volumes of Asian exports of graphic paper into Europe.

"Consolidation will contribute to a more robust and resilient European graphic paper industry, safeguarding security of domestic supply for the printing sector."

The joint venture plans to strategically reallocate production volumes to the most efficient paper machines, achieving more sustainable capacity utilisation and stronger operational performance. Operational synergies of at least €100m per annum should provide a pathway to greater value from the combined asset base.

Definitive agreements are planned to be signed in the first half of 2026, with the transaction proposed to close by the end of 2026, once all conditions precedent have been met.

The net assets Sappi is contributing to the JV generated a net taxed loss of about €83m in its most recent fiscal year, which included restructuring and impairment charges. The net assets UPM is contributing generated a net taxed profit of about €199m for the last 12 months to June. 

BUSINESS REPORT