The European Commission sent the companies a Statement of Objections on 25 August, warning that the proposed joint venture could weaken competition and create the leading communication-paper producer in the European Economic Area.
The regulator said the transaction could result in higher prices, lower quality, reduced production and fewer choices for customers.
Sappi and UPM can now respond to the allegations, inspect the commission’s evidence and request an oral hearing.
The formal objections do not mean the deal has been prohibited. They represent the commission’s preliminary competition findings.
A new giant for magazines and books
Sappi and UPM signed definitive agreements for the transaction in May. The companies plan to create an independent business owned equally by the two groups.
Sappi would contribute its European graphic-paper operations, including mills in Austria, Germany, the Netherlands and Finland.
UPM would add communication-paper assets in Germany, Finland, Britain and the United States.
The combined company would produce paper used in magazines, books, catalogues, advertising materials and other printed products.
The European Commission’s concerns are focused particularly on coated mechanical paper and coated wood-free paper.
It regards Sappi and UPM as the two largest producers of communication paper in the European Economic Area.
Combining them could leave customers with fewer meaningful alternatives.
Sappi is trying to escape a declining market
The transaction is central to Sappi’s plan for its European operations. Demand for graphic paper has declined for years as advertising, news, business records and entertainment have moved online.
![The European Commission fears the proposed joint venture could increase paper prices and reduce customer choice. [Gemini Generated Image]](data:image/svg+xml;base64,PHN2ZyB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciIHdpZHRoPSI3OTAiIGhlaWdodD0iNDMxIiB2aWV3Qm94PSIwIDAgNzkwIDQzMSI+PHJlY3Qgd2lkdGg9IjEwMCUiIGhlaWdodD0iMTAwJSIgc3R5bGU9ImZpbGw6I2NmZDRkYjtmaWxsLW9wYWNpdHk6IDAuMTsiLz48L3N2Zz4= "The European Commission fears the proposed joint venture could increase paper prices and reduce customer choice. [Gemini Generated Image]")
Paper manufacturers have responded by closing machines, reducing capacity and attempting to shift towards packaging, speciality papers and products derived from wood fibre.
Sappi has also faced volatile energy costs and competition from imported paper.
The company says the joint venture would create a stronger operation capable of maintaining a reliable supply for customers while protecting Europe’s manufacturing base.
UPM and Sappi expect approximately €100 million in annual savings from combining production, logistics, procurement and product portfolios.
The European Commission said it was not yet convinced that the claimed savings, environmental benefits and supply-security advantages would be sufficient to offset the possible harm to competition.
A major balance-sheet decision for Sappi
The joint venture would move a large portion of Sappi’s European graphic-paper exposure into a separately controlled company.
That could help the South African-listed group reduce its direct exposure to declining demand while retaining half of any future profits.
The structure also shares the cost and risk of further factory closures, maintenance and restructuring with UPM.
Failure to obtain approval would leave Sappi facing difficult decisions about mills that remain important employers but operate in a shrinking market.
The transaction is expected to have an enterprise value of approximately €1.42 billion.
The companies said financing had been secured when they announced the definitive agreements. The deal remains subject to regulatory and other conditions.
They previously expected final decisions by the end of 2026.
Companies could offer concessions
Sappi and UPM can attempt to answer the commission’s concerns or offer measures intended to preserve competition.
Possible remedies in large industrial transactions can include selling factories, surrendering production capacity, guaranteeing supplies or changing long-term customer contracts.
Neither company has announced concessions.
The regulator will assess the responses before deciding whether to approve the transaction, approve it with conditions or prohibit it.
A Statement of Objections is therefore a serious obstacle but not a final verdict.
For Sappi, the case will determine whether it can complete one of the most consequential restructurings in its international history.
For European customers, it will determine whether two of their largest paper suppliers can become one operation as the industry contracts.
