Finova Huichuan And Sappi Form A Joint Venture To Establish A Printing Paper Giant

Facing the triple pressures of a continuously declining European printing paper market, severe overcapacity, and high energy costs, two industry giants-UPM-Kymmene and Sappi-announced on December 4 that they had signed a non-binding letter of intent to establish a brand-new printing paper joint venture.

This collaboration is seen as a 'decisive response' to structural changes in the industry, aimed at enhancing the long-term resilience and sustainability of the printing paper business. According to the letter of intent, the new company will be jointly owned, with each party holding a 50% stake, and will operate as an independent company with autonomous management over operations, resources, and decision-making.

UPM-Kymmene President and CEO Massimo Renon stated that this move will not only provide customers with long-term supply assurance but also optimize UPM-Kymmene's product portfolio and further strengthen its balance sheet.

Performance Pressure Forces Transformation: The Tough Times for Giants

This partnership is not without reason; it is based on the recent severe financial pressures faced by both companies.

According to the latest financial report from Stora Enso, the company is facing challenges in its performance. By the first three quarters of 2025, the company's total sales reached €7.344 billion, showing a year-on-year decline; comparable EBIT stood at €566 million, a significant year-on-year drop of 30%, with its proportion of sales falling to 7.7%.

Among them, the media paper business was hit first, affected by weak demand and export tariffs. To optimize assets, Stora Enso has made structural adjustments, including permanently halting paper production at the Kaukas mill in Finland and selling the closed Pratline mill in Germany to a local logistics company to achieve a positive cash flow impact.

Sappi's situation is even more difficult. Fiscal year results as of September 30, 2025, show that the company suffered a net loss of $177 million. The group's adjusted EBITDA shrank sharply from $684 million in the previous fiscal year to $501 million.

In the European region, Sappi's revenue was €2.03 billion, but its adjusted EBITDA was only €58 million, mainly due to a general oversupply in the paper market and weak demand. Although the packaging paper and specialty paper (such as label paper) businesses saw some growth, the overall decline in profitability forced Sappi to seek large-scale structural adjustments.

Sappi CEO Steve Binnie and Stora Enso President & CEO Massimo Renon

Core Goals of the Joint Venture: Efficiency, Synergy, and Decarbonization

The core strategy of this joint venture lies in rationalizing supply and improving operational efficiency, with the aim of creating a more efficient, adaptable, and sustainable printing paper business.

1. Integrate capacity and achieve structural cost reduction. The joint venture plans to strategically reallocate production volumes to the most efficient paper machines, achieving more sustainable capacity utilization and stronger operational performance. Overall, this transaction is expected to generate approximately €100 million in synergies annually through asset optimization, product portfolio rationalization, logistics optimization, improved procurement efficiency, and enhanced operational efficiency. This will provide European and global customers with structural cost advantages and supply security, while contributing to a more balanced and resilient European market.

2. Advance climate goals and achieve green development. The joint venture will further implement Stora Enso's ambitious climate action roadmap, which aims to reduce product-related emissions by up to 70% by 2030. By optimizing capacity utilization, improving operational efficiency, and continuing to invest in decarbonization, the joint venture can reduce its overall climate impact, thereby supporting the goals of the EU's Clean Industry Agreement.

Transaction Details and Financial Arrangements

The scope of the proposed joint venture covers all of UPM's graphic paper business and Sappi's European paper business, specifically including: eight UPM mills located in Finland (Kymi, Rauma, Jämsänkoski), Germany (Nordland, Augsburg, Shank), the UK (Caledonian), and the US (Brandon), as well as four of Sappi's European paper mills located in Finland (Kirkniemi – the world's largest coated publication paper mill with an annual capacity of 750,000 tons), Germany (Ehingen), Austria ( Gratkorn), and the Netherlands (Maastricht).

According to the letter of intent, the combined enterprise value of the businesses and assets contributed by both parties is €1.42 billion (approximately RMB 11.7 billion), excluding anticipated gains from synergy effects.

The enterprise value of UPM's graphic paper business is €1.1 billion. UPM will receive €613 million in cash and a 50% stake in the joint venture, while transferring €406 million in pension liabilities to the joint venture. The enterprise value of Sappi's European business is €320 million. Sappi will receive €139 million in cash as well as a 50% stake in the joint venture.

After the transaction, the joint venture will independently raise funds to pay the acquisition price to UPM and Sappi respectively. Within three years after the transaction, it is expected that the joint venture will complete integration and achieve synergy effects, at which point either shareholder may choose to sell its stake.

For UPM, this transaction is expected to have a positive impact on its profit margins (EBIT as a percentage of sales), balance sheet, and leverage ratio. The company will also achieve a more growth-focused business portfolio, no longer directly selling to the shrinking European and North American printing paper markets.

Impact on the European Paper Market

The joint venture plan between UPM and Sappi is one of the most significant consolidation events in the European paper market in the past decade. This represents not only a strategic adjustment for the two companies but also an industry-wide response to structural decline, with far-reaching implications.

1. Ending the "Price War" Era and Reshaping Supply-Demand Balance

The fundamental problem in the European paper market over the long term has been permanent demand shrinkage due to digitalization, while capacity adjustments have lagged behind demand declines, leading to persistent oversupply. This imbalance has forced all participants into brutal price competition, severely compressing profit margins, as evidenced by Sappi's substantial losses.

Through supply rationalization, the joint venture plans to concentrate production on the most efficient machines, effectively resulting in permanent capacity withdrawal. A highly concentrated entity controlled jointly by the two major players will significantly enhance market pricing power.

The market will shift from being "fragmented, highly competitive, and subject to large price fluctuations" to "concentrated, rational, and relatively stable in pricing." For the remaining market participants, while there are fewer competitors, the increased bargaining power of the new giant will force all participants to reassess their cost structures and capacity decisions.

2. Cost Structure Optimization and Enhanced Industry Resilience

The annual €100 million synergy primarily comes from improvements in logistics, procurement, and operational efficiency, directly optimizing the cost structure of the new entity. In an industry with high variable costs (especially energy and raw materials), such large-scale cost reductions are crucial. They enable the merged entity to better withstand future energy price shocks and economic downturns, enhancing the entire industry's resilience against risks.

3. Focusing on Core Business: Accelerated Strategic Transformation of Stora Enso

For Stora Enso, this deal not only brings €613 million in cash flow but, more importantly, achieves a focused business portfolio. Divesting or partially divesting mature and declining markets (printing paper in Europe and North America) allows the company to allocate capital and management efforts to growth businesses (such as specialty paper, packaging, and biomaterials). This marks Stora Enso's decisive step in completely shedding the "traditional paper" label and transitioning to a supplier of "sustainable material solutions."

4. Impact on the Chinese Market and Import Patterns

Although the joint venture is primarily focused on European operations, it also has indirect effects on the Chinese market:

Stora Enso and Sappi are global companies, with the former ranking 8th and the latter 18th among the top 75 global paper companies. The optimization of their European capacities (with the exit from inefficient capacity) will make the supply side of global printing paper healthier. If European market prices stabilize and rise due to consolidation, it may indirectly affect global trade flows and the prices of imported printing paper in China. While the impact is relatively small, it will add complexity to the strategic planning of relevant Chinese companies.

If the joint venture focuses on efficient production, it will ensure the stable supply of high-end printing papers. For Chinese publishing and printing companies with high-end paper import needs, this provides supply chain security. Chinese companies and investors will shift their focus from "overcapacity" in the European market to the new pricing model under "oligopoly competition," requiring closer attention to the product strategies of the new industry giants.