M-real sells four paper mills to South African Sappi Limited
M-real Corporation, a subsidiary of the Finnish Metsäliitto Group, announced yesterday that the company has signed an agreement to sell its graphic papers business area to the South African Sappi Limited (the former South African Pulp and Paper) for an enterprise value of EUR 750 million.
The transaction consideration consists of EUR 500 million in cash and assumed debt, a EUR 200 million vendor loan note from Sappi to M-real, and EUR 50 million of newly issued shares in Sappi.
After the closing of the transaction, M-real’s net debt will decrease by approximately EUR 630 million.
The sale comprises the Kirkniemi and Kangas mills in Finland, the Stockstadt mill in Germany, and the Biberist mill in Switzerland, with a total capacity of 1.9 million tons.
As part of the deal, M-real and Sappi have also entered into a long-term agreement on the supply of pulp and BCTMP (bleached chemi-thermo-mechanical pulp) and some other smaller services and supplies.
A new kind of solution in the pulp and paper sector is that the Äänekoski paper mill in Finland and the Swedish Husum mill's PM8 will after the closing of the transaction continue production for Sappi under a long-term contract, even though they remain in M-real’s ownership.
For the time being, M-real plans to continue the production of office papers and packaging boards.
According to Kari Jordan, the President and CEO of the Metsäliitto Group, the future prospects for the office papers business area are also being examined, as the current profits are not sufficient.
If the business area is eventually sold, the most likely buyer candidate would be Sappi.
Once the office papers business area has been sold, M-real will have five board mills in Finland as well as a stake in the Finnish forest industry company Metsä-Botnia.
In the future, M-real intends to focus on high-quality packaging boards, while reporting that the completion of the transaction with Sappi will reduce their debt level and further improve their financial situation.
As a result of the transaction, M-real will have to write off a total of EUR 225 million. However, investors regard the deal as good, and on Monday M-real shares surged by 16 per cent.
The sale is expected to be completed at the latest during the first quarter of 2009, subject to approvals by the Sappi's extraordinary shareholders' meeting and the competition authorities and the implementation of Sappi's planned rights offering.
Previously in HS International Edition:
M-real and Elcoteq to cut more than 1,000 jobs in Finland (7.2.2007)
Stora Enso and UPM issue profit warnings (19.6.2008)
Troubled M-real to launch yet another restructuring programme (14.11.2007)
M-real Corporation Stock Exchange Release (29.9.2008)