Sappi Merger Faces EU Blockade: EU Update!

A European Union antitrust regulatory body has stepped closer to rejecting South African paper producer Sappi’s plans to form a €1.42 billion ($1.66 billion) joint venture with Finland-based company UPM-Kymmene over competition issues.

According to Reuters, September 18th news reported that the European Commission plans to reject the proposal after both parties refused to make concessions in order to resolve regulators’ concerns.

Final Decision Expected By November 11th

What Is the Sappi-UPM Deal?

UPM and Sappi made a joint plan to merge their graphic and communication papers business into an independent 50/50 joint venture.

The companies announced the merger with a total enterprise value of €1.42 billion. Sappi will contribute several European mills, and UPM will contribute its Communication Papers business in Europe, the UK, and the US.

The two firms have claimed that the merger of the operations is needed in order to solve the structural problems that the graphic paper industry faces.

For Sappi, the merger transaction would entail contributing its European Graphic Paper business and getting cash as well as 50% equity in the newly-formed business.

Why is the EU concerned?

The European Commission initiated a Phase II investigation into the concentration because it found that the proposed deal was posing serious doubts regarding its compatibility with the EU internal market.

In August, the Commission sent the firms a Statement of Objections explaining more thoroughly its concerns regarding competition issues. According to UPM, it was assessing the objections raised by the Commission and was confident that the objections were manageable.

According to Reuters, the regulators have expressed their particular concern about a potential reduction in competition on several communication papers used for magazines and books.

Also, the Commission warned that the business formed as a result of the merger might get market power enough to raise prices.

Why Didn’t the Companies Provide Any Remedies?

According to Reuters, neither Sappi nor UPM agreed to provide any remedies to resolve the issues regarding the deal. First, there were problems with finding possible buyers who would purchase the assets to be sold, thus making the divestiture an impractical step.

Another reason why the companies did not provide any remedies was their failure to convince the regulators about the advantages of the deal in a closed-door hearing conducted earlier in September.

Both companies claimed that the joint venture will improve the stability and supply continuity of the European graphic-paper industry.

What Does the EU Block Mean to Sappi?

In case of the EU rejection of the deal, Sappi is likely to have difficulties with restructuring of its graphic-paper segment.

The joint venture was supposed to involve mergers of production facilities to create a stronger business in the European graphic-paper segment. For Sappi, it means the combination of mills in Austria, Germany, the Netherlands, and Finland.

However, if the deal is rejected, it will influence Sappi’s further plans for the European paper business.

When Will the Decision Be Taken by the EU?

The decision is anticipated from the European Commission by November 11, 2026.

In light of the fact that the decision is not yet officially issued, the deal is still considered only as a proposed joint venture rather than a finalized merger or a vetoed deal.

Conclusion

Thus, the joint venture between UPM and Sappi is facing serious regulatory problems due to the EU competition authority’s fears that such a venture will result in reduced competition in the communication-paper market. While companies claim that this deal is intended to enhance the resilience of the industry, the refusal of the parties to make additional concessions resulted in a possible EU veto of the transaction.