UPM and Stora Enso: Rumors of mega merger - Papermart
Industry Watch

UPM and Stora Enso: Rumors of mega merger

September 13, 2013

According to a report published by the Swedish financial news portal affarsvarlden.se, analysts from Handelsbanken say that the probability of a deal between Stora Enso and UPM on the paper side is almost inevitable. In the possible joint venture, UPM’s interest would be around 65 per cent. It could give UPM actual control of the business, which would account for 38-40 per cent of capacity in the European paper industry, says the report.

A merger of this magnitude would give UPM the ability to stabilise paper prices in Europe. “If our merger scenario materialises, we believe that UPM will be the long-term winner in the deal,” Handelsbanken analysts forecast. The share price of UPM could double within three years if the joint venture is actually formed.

In the scenario advanced by the analysts of Handesbanken quoted in the report, Stora Enso will put 75 per cent of its paper capacity in exchange for a 35 per cent stake in the joint venture. The remaining assets in Europe, China and Brazil can be sold for EUR 550-600 million, speculates the bank.

Stora Enso would thus “receive an initial cash payment, benefit from a higher cash flow from paper operations and bring a major change in terms of structural exposure,” summarises Handelsbanken. The analysts from the bank predict that more than half of the company’s revenue in 2016 will come from the cyclical durable and more defensive packaging operations, which now are at 24 per cent.

The mooted move would create the world’s biggest paper company; it has been speculated about for some time. In fact a Reuters report last year stated: “A merger would improve profitability by combining production facilities while at the same time allowing them to take advantage of growth areas and businesses that are not overlapping, such as in packaging and label products.”

UPM had global sales of EUR 10.4 billion in 2012, 67 per cent of which was papermaking. Stora Enso posted worldwide sales of EUR 10.8 billion last year, with 43 per cet of that made up of printing and writing paper.