Myllykoski Corporation and Rhein Papier GmbH consist of seven publication paper mills in Germany, Finland and the United States. The total annual paper production capacity is 2.8 million tonnes. In addition, Myllykoski Corporation owns 0.8% of the Finnish energy company Pohjolan Voima Oy, with an estimated value of EUR 70 million. Following the transaction, UPM Group's balance sheet assets will increase by approximately EUR 1.6 billion.
The transaction will be financed through a directed share issue of 5 million UPM shares, with current market value of approximately EUR 60 million, and long-term debt arrangements amounting to EUR 800 million.
The transaction is subject to customary closing conditions, including, among others, the approval of the regulatory authorities. Myllykoski will continue to operate independently until the transaction will be closed. The target is to close the transaction during the second quarter of 2011.
The transaction is estimated to create annual synergy benefits exceeding EUR 100 million mainly from 2012 onwards. Synergy benefits will be reached for the most part by rationalising production, logistics and sourcing as well as reducing overlapping activities. The related restructuring and investment costs of the combined operations are estimated to be approximately EUR 100-150 million.
The transaction is estimated to have an immediate positive impact on UPM's cash flow starting from the second half of 2011 and on earnings per share in 2012.
After the completion of the transaction, UPM’s gearing ratio is estimated to rise by 8 percentage points. At the end of September 2010, the gearing ratio was 51%. UPM will report from the transaction a one-off gain of approximately EUR 300 million.
UPM's President and CEO Jussi Pesonen (pictured) says that UPM is focused on improving the cost efficiency and profitability of its European paper operations.
"With this transaction, we create the conditions needed for improving UPM's cash flow and mid-term profitability.”
Pesonen draws attention to the challenging operating environment of print customers.
“Electronic media is posing a growing challenge for the print media. Print media has to be able to respond not only with good content but also with excellent cost competitiveness. UPM has confidence in the potential of the graphic industry. Our target is to be a competitive player that is able to meet customers' expectations.”
"Myllykoski is without doubt one of the leading publication paper suppliers. The company has broad-mindedly taken advantage of new business concepts and technologies. We recognise today’s Myllykoski people as solid professionals, who have a strongly customer oriented approach. This attitude and know-how fit very well with UPM.”
Profitability of the publication paper industry has been poor for almost ten years already. Demand growth is shifting to markets outside of Europe and the European industry is inefficient.
“Combining forces and rationalising production is necessary for the future of the whole industry in Europe. This means both closing unprofitable production capacity and investments in order to increase cost efficiency,” says Pesonen.
“Paper is one of UPM's core businesses and our target is undisputed cost leadership as well as growth in China and other emerging markets. However, a balanced development of the different businesses within UPM is also in our interest. As a result of consolidation in the European paper business, we will also have better financial resources to implement our growth plans in our other businesses," says Jussi Pesonen.
