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Terms announcement regarding the Proposed Joint Venture between the European graphic paper businesses of Sappi & UPM
Sappi Limited
(Incorporated in the Republic of South Africa)
(Registration number 1936/008963/06
JSE share code: SAP
ISIN: ZAE000006284
"Sappi" or "the Company"
TERMS ANNOUNCEMENT REGARDING THE PROPOSED FORMATION OF A 50/50 JOINT VENTURE
BETWEEN THE EUROPEAN GRAPHIC PAPER BUSINESSES OF SAPPI AND UPM
1. SALIENT FEATURES
1.1 Sappi, through its wholly owned subsidiary, Sappi Papier Holding GmbH ("SPH"), has entered into binding
transaction agreements (the "Transaction Agreements") with UPM-Kymmene Oyj ("UPM") in relation to the
formation of a proposed joint venture over the respective companies' graphic paper and related operations in
Europe and other international jurisdictions (the "Joint Venture").
1.2 The Joint Venture will comprise the graphic paper business of Sappi in Europe (the "Sappi Contributed
Business") and the UPM communication papers business in Europe, the United Kingdom and the United
States of America (the "UPM Contributed Business"). The Joint Venture will be owned 50/50 by Sappi
(through SPH) and UPM (the "Parties") (the "Proposed Transaction").
1.3 The Proposed Transaction consists of the formation of the Joint Venture through the contribution of the Sappi
Contributed Business and the UPM Contributed Business to the Joint Venture, the consideration for which is
to be settled through a combination of equity in the Joint Venture, upfront cash payments funded through third-
party debt funding raised by the Joint Venture at the Closing Date (as defined in paragraph 5.4 below) and
shareholder loan claims against the Joint Venture (which effectively represent a deferred cash consideration
component).
1.4 SPH will transfer the Sappi Contributed Business to the Joint Venture at an enterprise value of €320 million,
which includes pension and other liabilities of €53 million, for a net purchase consideration of €267 million on
loan account, to be settled per paragraph 1.3 above.
1.5 UPM will transfer the UPM Contributed Business to the Joint Venture at an enterprise value of €1,100 million,
which includes pension and other liabilities of €360 million, for a net purchase consideration of €740 million on
loan account, to be settled per paragraph 1.3 above.
1.6 Completion of the Proposed Transaction enables Sappi to considerably reduce its exposure to the declining
graphic paper industry, enabling the Company to focus on its core growth segments, being packaging and
pulp. The Joint Venture provides a pathway to realise greater value from the combined asset base, with Sappi
ultimately gaining an equity interest in a stronger and more resilient combined business. This is a significant
step forward in Sappi's strategy of shifting its mix toward higher growth and margin segments, by reducing its
direct graphic paper exposure, whilst unlocking value from its European graphic paper assets, contributing
towards debt reduction and protecting its balance sheet.
2. INTRODUCTION
2.1 Further to the announcement released on SENS on Thursday, 4 December 2025 (the "Initial
Announcement") regarding the proposed formation of the Joint Venture, shareholders are advised that Sappi,
through SPH, has entered into binding Transaction Agreements with UPM in relation to the Proposed
Transaction.
2.2 All information pertaining to the Proposed Transaction, including the Proposed Transaction terms, disclosed
in this announcement reflect the terms agreed to in the Transaction Agreements and supersedes any
information disclosed in the Initial Announcement.
3. RATIONALE FOR THE PROPOSED TRANSACTION
3.1 Demand for graphic paper has been in structural decline for decades, primarily driven by the accelerating pace
of digitalisation. Despite substantial capacity reductions in recent years, industry utilisation rates remain
unsustainably low. In addition, recent trade tensions and tariffs have further disrupted traditional trade flows,
leading to increased volumes of Asian exports of graphic paper into Europe.
3.2 The European graphic paper industry is facing growing pressure due to the falling demand, high energy costs,
excess production capacity and broader economic challenges. To remain competitive and sustainable in the
long term, consolidation is needed and will contribute to a more robust and resilient European graphic paper
industry, thereby safeguarding security of domestic supply for the printing sector.
3.3 The consolidation of Sappi and UPM's graphic paper assets is expected to enhance operational performance
and support more sustainable capacity utilisation through the strategic reallocation of production volumes to
the most efficient paper machines, while maintaining a broad portfolio of European graphic paper products. In
addition, the Joint Venture can reduce overall climate impact in alignment with the EU's Clean Industrial Deal
objectives through improved operational efficiencies and ongoing investment in decarbonisation.
3.4 The Proposed Transaction presents the best strategic option to maximise value for Sappi shareholders from
the Sappi Contributed Business by combining the Parties' businesses within an integrated platform that
enhances resilience and adaptability, ensures sustainable operations, and secures a structurally competitive
cost base.
3.5 The potential operational synergies (which are anticipated to be at least €100 million per annum) created
through the Joint Venture provide a pathway to realise greater value from the combined asset base, than either
Party could achieve on a standalone basis.
3.6 The Proposed Transaction addresses Sappi's key strategic priorities of shifting its mix towards higher growth
and margin segments, by reducing its direct graphic paper exposure, reducing debt and strengthening the
balance sheet.
3.7 The key benefits of the Joint Venture for Sappi and its shareholders are as follows:
3.7.1 Sappi's share of equity-accounted income from the Joint Venture, following the realisation of synergies,
is expected to improve Sappi's consolidated EBITDA relative to the standalone EBITDA of the Sappi
Contributed Business over time;
3.7.2 Sappi's Thrive strategy aims to progressively reduce exposure to declining graphic paper markets and
reposition the portfolio toward higher-growth, higher-value segments. Following implementation of
the Proposed Transaction, there will be a considerable reduction in Sappi's direct sales volume
exposure to the graphic paper segment;
3.7.3 The cash consideration that Sappi will receive as part of the Proposed Transaction will enable Sappi to
reduce offshore debt. Furthermore, cash dividends received from the Joint Venture in the future will
contribute to debt reduction for the Company over time;
3.7.4 The establishment of the Joint Venture creates a sustainable standalone business that ultimately
preserves strategic optionality for Sappi by providing divestment flexibility in the future; and
3.7.5 Other than the initial non-cash Shareholder Loans described in paragraph 5.1.4, the Joint Venture will
be substantially self-funding and to the extent that it requires additional funding in time, it will be without
recourse to Sappi (and SPH) or UPM.
4. DESCRIPTION OF THE ASSETS BEING CONTRIBUTED TO THE JOINT VENTURE
4.1 Sappi Contributed Business
The Sappi Contributed Business, which is effectively Sappi's European graphic paper business, specialises in
the production and supply of coated and uncoated woodfree and coated mechanical paper grades in Europe
serving the publishing and commercial print markets, and comprises the following paper mills located in four
countries, together with certain of Sappi's global supporting functions and other assets insofar as they relate
specifically to this business:
4.1.1 Gratkorn Mill (Austria);
4.1.2 Ehingen Mill (Germany);
4.1.3 Maastricht Mill (The Netherlands); and
4.1.4 Kirkniemi Mill (Finland).
It is noted that Sappi's contributed asset perimeter has changed in comparison to the Initial Announcement,
with the removal of Sappi Europe's 50% interest in a wood supply joint venture, which will no longer be
contributed to the Joint Venture.
4.2 UPM Contributed Business
The UPM Contributed Business, which is effectively UPM's communication papers business in Europe, the
United States and the United Kingdom, also specialises in the production and supply of coated and uncoated
woodfree and coated mechanical paper grades in Europe serving the publishing and commercial print markets,
and comprises the communication papers business assets positioned at the following UPM paper mills located
in four countries, together with certain of UPM's global supporting functions and other assets insofar as they
relate specifically to this business:
4.2.1 Augsburg (Germany);
4.2.2 Schongau (Germany)
4.2.3 Nordland paper lines 1 and 4 (Germany);
4.2.4 Caledonian (United Kingdom);
4.2.5 Rauma including UPM RaumaCell (Finland);
4.2.6 Kymi (Finland);
4.2.7 Jamsankoski paper line 6 (Finland); and
4.2.8 Blandin (United States of America).
5. KEY TERMS OF THE PROPOSED TRANSACTION
5.1 Description of the Proposed Transaction, purchase consideration and settlement
5.1.1 The Proposed Transaction consists of the formation of the Joint Venture through the contribution of the
Sappi Contributed Business and the UPM Contributed Business to the Joint Venture, the consideration
for which is to be settled through a combination of equity in the Joint Venture, upfront cash payments at
the Closing Date funded through third-party funding raised by the Joint Venture, as described in
paragraph 5.1.5 below, and shareholder loan claims against the Joint Venture, which are intended to be
repaid in due course as determined optimal by the Parties taking into account, amongst other factors,
financing capacity of the Joint Venture and prevailing market conditions, subject to paragraph 5.1.6
below.
5.1.2 Subject to the fulfilment of the conditions precedent summarised in paragraph 5.3 below ("Conditions
Precedent"), the Proposed Transaction will result in the establishment of the Joint Venture which will
carry on the Joint Venture business from the Closing Date as a standalone entity that is substantially
autonomous and self-funded.
5.1.3 The Proposed Transaction will be implemented as one integrated and interdependent process as
contemplated in the Transaction Agreements, but in terms of a series of individual transfer,
implementation and/or restructuring steps:
5.1.3.1 SPH will transfer the Sappi Contributed Business to the Joint Venture at an enterprise value of
€320 million, which includes pension and other liabilities of €53 million, for a net purchase
consideration of €267 million on loan account ("Sappi Receivables") to be settled by the Joint
Venture in accordance with paragraph 5.1.4 below;
5.1.3.2 UPM will transfer the UPM Contributed Business to the Joint Venture at an enterprise value of
€1,100 million, which includes pension and other liabilities of €360 million, for a net purchase
consideration of €740 million on loan account ("UPM Receivables") to be settled by the Joint
Venture in accordance with paragraph 5.1.4 below;
5.1.4 The Sappi Receivables and the UPM Receivables will be settled as follows. A portion will be settled
through:
5.1.4.1 application towards equity subscriptions by each of SPH and UPM (of an equal amount of €167
million) in the Joint Venture, resulting in UPM and SPH each holding a 50% equity interest in
the Joint Venture;
5.1.4.2 upfront cash payments at the Closing Date to each of SPH and UPM of €90 million and €475
million respectively, to be funded through third-party bridge debt funding raised by the Joint
Venture in accordance with the relevant third-party funding agreements that have been entered
into; and
5.1.4.3 shareholder loan claims held by each of SPH and UPM respectively, against the Joint Venture
("Shareholder Loans"), in accordance with the relevant shareholder loan agreement that forms
part of the Transaction Agreements that have been entered into. The Shareholder Loans will
comprise: (i) a common Shareholder Loan of €10 million ("Common Shareholder Loans")
advanced by each of SPH and UPM and a preferred Shareholder Loan of €88 million
("Preferred Shareholder Loan") advanced to the Joint Venture by UPM only, it being noted that no
cash will be advanced by either SPH or UPM to the Joint Venture in terms of the Shareholder
Loans.
5.1.5 The Joint Venture has entered into final (full and binding) agreements regarding a third-party bridge debt
funding facility for a principal amount of €600 million, and has secured a committed revolving credit
facility (for working capital purposes) of €100 million (both facilities without any recourse to either of the
Parties) and without any right for the relevant banks to participate in the share capital or other equity of
the Joint Venture or to otherwise participate in the business of the Joint Venture.
5.1.6 The Parties have agreed to introduce sustainable third-party debt funding in the Joint Venture to
refinance the third-party bridge debt funding referred to in paragraph 5.1.5 above and to settle the
Shareholder Loans referred to in paragraph 5.1.4.3 above in due course as determined optimal by the
Parties taking into account, amongst other factors, financing capacity of the Joint Venture and prevailing
market conditions. No dividends will be declared by the Joint Venture until the Shareholder Loans have
been settled.
5.1.7 Refer to the summary table below:
Sappi Contributed UPM Contributed Joint
€'m Business Business Venture
Purchase consideration breakdown
Enterprise value 320 1,100 1,420
Pension and other liabilities (53) (360) (413)
Net purchase consideration 267 740 1,007
Settlement of net purchase consideration
Upfront cash payment 90 475 565
Common Shareholder Loans 10 10 20
Preferred Shareholder Loan - 88 88
Equity subscription in the Joint Venture 167 167 334
Total settlement 267 740 1,007
5.1.8 The respective net purchase considerations reflected above are subject to net debt (or liability) and
working capital adjustments at the Closing Date as are customary for a transaction of this nature and
could affect the settlement amounts in respect of the upfront cash payments and/or further amounts
owing to the Parties as may be applicable.
5.2 Application of the purchase consideration
Sappi intends on applying the net cash proceeds from the Proposed Transaction, comprising the €90 million
cash consideration that will be received on closing and the additional €10 million that Sappi will receive on
settlement of Sappi's Common Shareholder Loan claim against the Joint Venture, to reduce its offshore debt,
thereby improving Sappi's balance sheet and lowering net interest expense.
5.3 Conditions Precedent to the Proposed Transaction
The Proposed Transaction is subject to the fulfilment (or, where applicable, waiver) of the following outstanding
Conditions Precedent, as agreed in the Transaction Agreements, by 30 June 2027 ("Longstop Date"):
5.3.1 the approval of an ordinary resolution, in terms of the JSE Listings Requirements as described in
paragraph 8 below, by the Sappi shareholders at a general meeting (the "General Meeting") held for
this purpose and to be convened in accordance with the notice of General Meeting to be included in the
Circular referred to in paragraph 9 below;
5.3.2 that the South African Reserve Bank has granted its consent, approval, clearance, confirmation or
licence with regard to the Proposed Transaction in accordance with applicable laws;
5.3.3 that all merger control and foreign direct investment approvals required to implement the Proposed
Transaction, as set out in the Transaction Agreements, have been obtained (or deemed to have been
obtained) from the relevant regulatory authorities, notably the European Commission (the
"Commission");
5.3.4 the restructuring steps set out in the Transaction Agreements, governing, amongst other things, the
steps and transactions that give effect to the carve-out of the Sappi Contributed Business from the
Company's retained business and the carve-out of the UPM Contributed Business from UPM's retained
business for purposes of the Proposed Transaction having been implemented;
5.3.5 that Sappi has provided evidence that certain guarantees, pledges or other security interests given to
certain third parties by, or on behalf of, Sappi's entities that fall within the Joint Venture perimeter, in
relation to existing debt facilities of the retained business of Sappi (falling outside of the Joint Venture
perimeter), will be released; and
5.3.6 that certain legally required information and consultation procedures with employees and/or employee
representative bodies in respect of the Proposed Transaction (and any required pre-completion
restructuring related thereto), as set out in the Transaction Agreements, have been completed (or are
deemed to have been completed).
5.4 Closing Date of the Proposed Transaction
Unless otherwise agreed by the Parties in writing, the Proposed Transaction will complete within three months
following fulfilment or waiver of the Conditions Precedent in accordance with the Transaction Agreements (the
"Closing Date"). The relevant Transaction Agreements provide that the Conditions Precedent must be fulfilled
or waived (to the extent possible) on or before the Longstop Date or such other date as agreed between the
Parties.
5.5 Other important terms
5.5.1 The Transaction Agreements contain typical provisions relating to restrictions on the Parties in respect
of the transfer of their shares and Shareholder Loan claims in the Joint Venture, rights of first offer
between the Parties, tag-along and drag-along provisions in the event of a disposal of shares in the
Joint Venture and exit provisions. In terms of the Transaction Agreements, neither of the Parties may
dispose of or encumber their shares in the Joint Venture for the first three years after the Closing Date,
except for transfers to wholly-owned affiliates.
5.5.2 Sappi (as the parent company of SPH) has provided a guarantee in respect of all SPH's obligations
under the Transaction Agreements. These guarantees take the form of abstract guarantees as
contemplated in section 880a of the Austrian Civil Code, pursuant to which Sappi, as guarantor and
primary obligor, irrevocably and unconditionally guarantees payment upon UPM's first written demand.
5.5.3 The Transaction Agreements provide that if, before or on the Closing Date, any transfer of shares or
assets to the Joint Venture cannot be effected due to legal, regulatory or contractual restrictions that
cannot reasonably be overcome, the Parties will negotiate in good faith to agree on adjustments to the
Joint Venture, alternative structures and/or purchase prices to address such restriction while preserving
the economic substance of the Proposed Transaction.
5.5.4 UPM has a right (exercisable during the period between the second and third anniversary of the date of
the agreement governing the Shareholder Loans, which form part of the Transaction Agreements) to
require SPH to purchase 50% of UPM's claim against the Joint Venture in respect of the Preferred
Shareholder Loan (plus accrued interest), to the extent that such loan has not been repaid by that time.
5.5.5 Further details regarding the important terms of the Transaction Agreements will be included in the
Circular referred to in paragraph 9 below.
6. FINANCIAL INFORMATION
6.1 The book value of the net assets comprising the Sappi Contributed Business amounts to €559 million as at 31
March 2026, being the date of the last interim financial statements of Sappi. The net assets comprising the
Sappi Contributed Business generated a net loss after tax of €129 million for the six months ended 31 March
2026, which included restructuring and impairment charges incurred during the six months period. The value
of net assets and the net loss after tax are unaudited values based on management accounts and carve-out
calculations made with material assumptions, specifically for the purposes of the Proposed Transaction
disclosure requirements. Sappi is satisfied with the quality of those management accounts.
6.2 The book value of the net assets comprising the UPM Contributed Business amounts to approximately €352
million as at 31 December 2025, being the date of the last annual financial statements of UPM. The net assets
comprising the UPM Contributed Business generated a net profit after tax of €86 million for the six months
ended 31 December 2025. The value of net assets and the profit after tax are unaudited values based on
management accounts and carve-out calculations made with material assumptions, specifically for the
purposes of the Proposed Transaction disclosure requirements. Sappi is satisfied with the quality of those
management accounts.
7. EUROPEAN COMMISSION UPDATE
7.1 Notification of the Proposed Transaction was submitted to the Commission on 19 March 2026 in accordance
with applicable merger control requirements.
7.2 On 28 April 2026, the Commission confirmed that it had initiated a Phase II investigation into the Proposed
Transaction. The commencement of a Phase II review is part of the normal regulatory process whereby certain
matters require further detailed assessment following the initial Phase I review.
7.3 The Parties are cooperating fully with the Commission and continue to engage constructively throughout this
phase of the review process.
7.4 Following the implementation of Phase II, the Commission has 90 working days, until 26 October 2026, to
make a decision.
8. CATEGORISATION OF THE PROPOSED TRANSACTION
8.1 The value of the Proposed Transaction exceeds 30% of Sappi's market capitalisation as at the date of
signature of the Transaction Agreements and therefore meets the definition of a Category 1 Transaction as
contemplated in Section 8 of the JSE Listings Requirements.
8.2 As a result, the Proposed Transaction is required to be approved by shareholders by way of an ordinary
resolution, which will require the support of more than 50% of the votes exercised on it.
9. DOCUMENTATION
A circular containing the full details of the terms of the Proposed Transaction (the "Circular") will be distributed
to Sappi shareholders on or before 30 June 2026, in line with the Listings Requirements of the JSE. The
Circular will, inter alia, incorporate a notice convening a General Meeting of shareholders at which Sappi
shareholders will be requested to consider, and if deemed fit, to pass, with or without modification the relevant
resolutions required to approve the Proposed Transaction.
Rosebank
28 May 2026
South African Corporate Advisor, Sponsor and Corporate Broker to Sappi
Rand Merchant Bank, a division of FirstRand Bank Limited
South African Legal Advisor to Sappi
BOWMANS
Date: 28-05-2026 08:32:00
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