EU challenges Sappi's $1.66 billion plan to form Europe's largest paper producer

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The European Union has formally challenged South African multinational Sappi’s €1.42 billion, approximately $1.66 billion, plan to combine major paper operations with Finland’s UPM.

South African-listed Sappi plans to combine its European graphic-paper operations with assets owned by Finland’s UPM.[Gemini Generated Image] The European Commission has formally raised objections to Sappi and UPM’s proposed €1.42 billion paper joint venture. The regulator fears the transaction could create Europe’s leading communication-paper producer and weaken competition. Sappi and UPM argue that consolidation is required to manage falling demand and protect production. The objections are preliminary and do not mean the transaction has been blocked. ADVERTISEMENT Read Also markets Glencore faces $1.4 billion lawsuit threat while pursuing $9 billion Congo copper and cobalt deal markets Libyan state bank takes Burkina Faso to World Bank tribunal after military government seizes its 50% stake markets South Africa welcomes nearly 1 million tourists as arrivals from India fall 27% and China 20% window._taboola = window._taboola || []; _taboola.push({ mode: 'thumbnails-mid-n', container: 'taboola-thumbnails-mid-1', placement: 'Thumbnails Mid 1', target_type: 'mix' }); The European Commission sent the companies a Statement of Objections on 25 August, warning that the proposed joint venture could weaken competition and create the leading communication-paper producer in the European Economic Area.

The regulator said the transaction could result in higher prices, lower quality, reduced production and fewer choices for customers.

Sappi and UPM can now respond to the allegations, inspect the commission’s evidence and request an oral hearing.

The formal objections do not mean the deal has been prohibited. They represent the commission’s preliminary competition findings.

Sappi and UPM signed definitive agreements for the transaction in May. The companies plan to create an independent business owned equally by the two groups.

Sappi would contribute its European graphic-paper operations, including mills in Austria, Germany, the Netherlands and Finland.

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UPM would add communication-paper assets in Germany, Finland, Britain and the United States.

The combined company would produce paper used in magazines, books, catalogues, advertising materials and other printed products.

The European Commission’s concerns are focused particularly on coated mechanical paper and coated wood-free paper.

It regards Sappi and UPM as the two largest producers of communication paper in the European Economic Area.

Combining them could leave customers with fewer meaningful alternatives.

The transaction is central to Sappi’s plan for its European operations. Demand for graphic paper has declined for years as advertising, news, business records and entertainment have moved online.

The European Commission fears the proposed joint venture could increase paper prices and reduce customer choice. [Gemini Generated Image] BI Africa Paper manufacturers have responded by closing machines, reducing capacity and attempting to shift towards packaging, speciality papers and products derived from wood fibre.

Sappi has also faced volatile energy costs and competition from imported paper.

The company says the joint venture would create a stronger operation capable of maintaining a reliable supply for customers while protecting Europe’s manufacturing base.