UPM-Kymmene Oyj, Europe’s second-biggest papermaker, will buy Myllykoski Oyj and Rhein Papier GmbH as the industry consolidates in response to higher production costs and a shift in demand to digital publications.
The value of the businesses is about 900 million euros ($1.19 billion), Helsinki-based UPM said in a statement to Finland’s stock exchange today. The transaction gives UPM seven publication paper mills in Germany, Finland and the U.S.
“Combining forces and rationalizing production is necessary for the future of the whole industry in Europe,” Jussi Pesonen, chief executive officer of UPM, said in the statement. “This means both closing unprofitable production capacity and investments in order to increase cost efficiency.”
The paper industry is facing a wave of consolidation as consumers turn to digital books, magazines and newspapers. Rising costs for wood, pulp and recovered paper have also hurt manufacturers. The transaction announced today may bring more than 100 million euros in annual so-called synergy savings, UPM said.
The publication paper industry has suffered from “poor” profitability for the past decade as demand growth shifts outside Europe, UPM said. UBS AG, Switzerland’s biggest bank, on Dec. 3 rated UPM a short-term buy on the prospect of consolidation in the industry. UPM has gained 44 percent this year, giving it a market capitalization of 6.2 billion euros.
UPM said it will finance the acquisition through a targeted share issue of 5 million new shares, equivalent to about 60 million euros. The company will also fund the deal through long-term debt arrangements of about 800 million euros, it said. UPM said it expects to close the deal, which is subject to approval by regulatory authorities, in the second quarter.