Sappi acquires coated graphic paper business from M-real in major strategic move, achieving much needed industry consolidation in Europe

“This document is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration with the United States Securities and Exchange Commission or an exemption from registration. There will be no public offering of any securities in the United States.”

Sappi Limited, a leading producer of coated fine paper and chemical cellulose, today announced that it has signed an agreement to acquire the coated graphic paper business of M-real for Euro 750 million ($1.1 billion; R8.9 billion), subject to a purchase price adjustment for net debt and working capital. The transaction includes the acquisition of M-real’s coated graphic paper business (other than in respect of M-real’s South African business), including brands and know-how, as well as four coated graphic paper mills - at Kirkniemi and Kangas in Finland, Stockstadt in Germany and Biberist in Switzerland. Husum PM8 Mill in Sweden and Äänekoski PM2 Mill in Finland will remain in M-real’s ownership and continue as contract producers for Sappi under supply agreements. The transaction also includes long term supply agreements for wood, pulp and other services. The acquisition will be financed through a combination of equity, assumed debt, the cash proceeds from a rights offering and a vendor note.

M-real has today announced plans for its Gohrsmühle and Hallein mills, located in Germany and Austria respectively, to discontinue production of coated woodfree paper (approximately 0.6 million tons of capacity per annum).


The main benefits of the acquisition include:

• Enhancement of Sappi’s leading position in the coated fine paper sector in Europe and globally.
• Expansion of Sappi’s woodfree coated product offering and customer base, as well as the addition of the strong brands and significant market position of M-real’s magazine paper.
• Increase of Sappi’s European graphic paper capacity from 2.6m tons/annum to 4.5m tons/annum.
• Expected realisation of significant synergies. We estimate total annual synergies of approximately €120 million which should be realisable in full within three years and without material capital investments.

Sappi expects to fund the cash portion of the consideration with the proceeds of a rights offering. Citigroup Global Markets Limited ("Citi") and JPMorgan Securities Ltd. ("J.P. Morgan") have provided Sappi with a standby equity underwriting letter for the entire Euro 450 million rights offering. The rights offering is expected to be launched after receipt of approval from the relevant anti-trust and competition authorities.

Commenting on the transaction Ralph Boëttger, chief executive officer of Sappi Limited, said:

“This acquisition will significantly strengthen Sappi’s market position in Europe and globally by combining M-real’s strong brands and assets with Sappi’s already powerful product offering. This transaction is in line with Sappi’s stated intention to improve profitability and returns, and to seek out opportunities that will add value to and grow Sappi’s business as a market leader in coated fine paper and chemical cellulose.”

“We are excited about the transaction and the benefits it brings to Sappi, the industry, as well as to our existing and new customers. We anticipate that the acquisition will increase profitability, resulting in better returns and improved cash flows for the group. We expect that these benefits will in part be achieved due to expected annual synergies coming from the maximizing of capacity utilization and distribution, the integration of sales and administration, and the rationalization of manufacturing across the Sappi group.”


“The products and brands which have been acquired are an excellent complement to our strong market offering, enabling us to offer our existing, as well as new customers in Europe, North America and globally, a broader range of products coupled with excellent customer service.”

“Sappi has built its global footprint through the acquisition and integration of businesses in North America and Europe. This transaction provides significant momentum to the execution of Sappi’s stated strategy to become the most profitable company in the pulp, paper and chemical cellulose sectors in which it operates.”

“I am also pleased to be able to report that Allan Gray Limited and RMB Asset Managers, who in aggregate, manage approximately 34% of Sappi’s shareholding, have agreed to support the Acquisition. Allan Gray and RMBAM have also agreed to recommend to their clients currently holding, in aggregate, approximately 34% of Sappi's issued ordinary shares to
subscribe for their full entitlement under the proposed rights offer."

“The transaction is conditional on a number of conditions precedent, including approval from the competition authorities in the United States and the European Union.”

ENDS

The full transaction announcement is available at www.sappi.com

There will be a presentation by Sappi’s CEO, Ralph Boëttger, at 11h30 at Sappi's offices at 48 Ameshoff Street Braamfontein, to be broadcast on Summit TV (DSTV Channel 412) and available as an audio webcast on www.sappi.com

Dial in Details:
South Africa
Toll 011 535 3600
Toll-free 0800 200 648

USA
Toll-free 1 866 752 6302 (Press *0 for Operator)

UK
Toll-free 0800 917 7042

EUROPE & OTHER
Toll + 41 916 105 600
Toll-free: + 800 246 78 700

There will be a conference call to which investors are invited. Full details are available at www.sappi.com