Paper Maker UPM-Kymmene To Buy Rival

Finnish paper maker UPM-Kymmene Corp. said it will acquire smaller rival Myllykoski Corp. and German-based Rhein Papier GmbH, together valued at some $1.2 billion.

HELSINKI (AP) -- Finnish paper maker UPM-Kymmene Corp. said Tuesday it will acquire smaller rival Myllykoski Corp. and German-based Rhein Papier GmbH, together valued at some €900 million ($1.2 billion).

UPM's stock closed up more than 6 percent at €12.76 ($16.79) on the Helsinki Stock Exchange.

The company did not disclose the size of the deal but said it would be financed by a share issue of 5 million UPM shares amounting to some €60 million and debt arrangements amounting to €800 million.

Myllykoski and Rhein Papier have seven paper mills in Germany, Finland and the United States with a total annual capacity is 2.8 million tons. After the transaction, UPM said its assets will increase by some €1.6 billion.

The world's largest magazine paper maker said the deal will result in annual synergy benefits of more than €100 million from 2012 as it will be able to rationalize production, logistics and sourcing and cut overlapping activities.

CEO Jussi Pesonen said Tuesday that the announced deal creates "the conditions needed for improving midterm profitability" and cash flow.

"Combining forces and rationalizing 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," he added.

Restructuring and investment costs will be amount to €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," UPM said. The transaction is subject to regulatory approval and is expected to close in the second quarter of 2011.

In September, UPM said it was in talks to merge with Myllykoski in an attempt to consolidate an industry struggling with overcapacity and plunging prices.

Earlier this year, reports of possible mergers between three Nordic paper makers fueled speculation that the sector was seeking significant changes.

The reports were quashed by the three companies -- Finland's Stora Enso Oyj, Holmen AB of Sweden and Norwegian Norse Skog AG -- but analysts have said that combining operations would benefit the paper rivals.

Stora Enso has warned that overcapacity in the European newsprint market will reach 18 percent this year in an industry that has been plagued by a long-term slide in demand and an economic downturn.

Helsinki-based UPM, with 23,000 workers worldwide, has laid off thousands of workers and has warned that more mill closures are possible. Its net sales amounted to some €8 billion in 2009.

Myllykoski employs 2,700 people, down from 4,000 in 2005. Net sales were €1.2 billion last year, with Germany accounting for more than a third of its market followed by North America with 17 percent.
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