UPM, Sappi paper joint venture may lead to price hikes, EU regulators warn
EU Investigation into UPM-Sappi Joint Venture
By Foo Yun Chee
Background of the Proposed Joint Venture
BRUSSELS, April 28 (Reuters) - A proposed paper joint venture between Finnish forestry group UPM-Kymmene and South African-listed wood fibre producer Sappi may reduce competition and lead to price hikes, EU antitrust regulators warned on Tuesday as they opened an investigation into the deal.
The move will likely require the companies to offer concessions such as asset sales to address the competition concerns.
Details of the Tie-Up
The 1.42-billion-euro ($1.7 billion) tie-up seeks to combine UPM's communication papers unit and Sappi's graphic paper business in Europe and comes as the industry grapples with falling demand, structural overcapacity and high energy costs.
EU Commission's Concerns
The European Commission, which acts as the EU competition enforcer, singled out UPM and Sappi's market power as major suppliers of coated mechanical paper (CM) and wood free coated (WFC) paper in Europe and rivals between themselves.
Potential Impact on Market and Consumers
It said rivals would not have the ability or incentive to offset any price hikes by the joint venture.
Commission's Statement
"The transaction could result in a reduction of production capacity in those markets, along with higher prices and lower quality of CM and WFC paper for customers, which include printers and publishers," the Commission said in a statement.
Response from UPM
UPM said it continues to engage constructively with the EU watchdog.
UPM's Position on the Joint Venture
"UPM remains convinced of the joint venture's benefits to customers and the entire industry by strengthening the resilience of European graphic paper supply in declining markets," the company said in a statement.
Next Steps in the Investigation
It will issue its decision by October 26. Reuters reported on the imminent EU probe last week.
Additional Information
($1 = 0.8542 euros)
(Reporting by Foo Yun Chee,; Additional reporting by Abu Sultan in Bengaluru;Editing by Sudip Kar-Gupta and Mark Porter)
