European Commission Maintains Serious Concerns Over Proposed UPM–Sappi Graphic Paper Joint Venture
UPM and Sappi have received a Letter of Facts from the European Commission indicating that the Commission continues to have serious concerns about their proposed graphic paper joint venture. The companies are currently analyzing the document and preparing their response as the European regulatory review continues. Despite the Commission’s preliminary assessment, UPM maintains that the proposed transaction could strengthen the long-term competitiveness, sustainability, and resilience of Europe’s graphic paper industry.
The proposed joint venture is intended to address significant structural challenges facing the European graphic paper market, where demand has declined substantially over the past two decades because of increasing digitalization. UPM believes the transaction represents a strategic response to changing market conditions and could help the industry adjust production capacity, improve operational efficiency, and maintain reliable supplies for customers.
To address the European Commission’s concerns, UPM and Sappi are planning to submit proposals for specific remedies. However, the companies have indicated that they do not intend to propose divestments, citing the underlying rationale and objectives of the transaction. The parties are continuing to engage with the regulatory process while assessing the implications of the Letter of Facts.
European Commission Continues Its Merger Review
The Letter of Facts represents a significant development in the European Commission’s assessment of the proposed transaction. The document indicates that the Commission continues to identify issues requiring consideration before it can reach a final decision on the joint venture.
UPM disagrees with the Commission’s preliminary assessment and intends to continue participating in the review process. The company maintains that the transaction should be considered in the context of the broader economic challenges affecting the European graphic paper industry, including declining demand, excess production capacity, and increasing pressure on manufacturers to remain competitive.
The companies are now reviewing the Commission’s findings and preparing their response. Their planned submission of specific remedies is intended to address the regulator’s concerns while preserving the principal objectives of the proposed transaction.
The outcome of the review will be important for both companies as they seek to determine the future structure of their graphic paper operations in Europe. The transaction remains subject to merger control approvals and other applicable closing conditions.
Changing Competition Policy in Europe
The proposed joint venture is being assessed as the European Commission updates its approach to competition policy in response to Europe’s changing economic and strategic environment. In an increasingly fragmented global economy, policymakers are considering how merger assessments can protect effective competition while also accounting for factors such as industrial resilience, innovation, investment, and longer-term market developments.
The Commission’s leadership has called for merger assessments to give appropriate consideration to these broader factors alongside the protection of competition. This direction is reflected in the Commission’s draft revised Merger Guidelines, published on April 30, 2026.
UPM’s position is that these considerations are particularly relevant to industries experiencing structural decline. In such markets, companies must respond to long-term changes in demand while managing production capacity, operating costs, investment requirements, and customer commitments.
The graphic paper industry provides an example of these challenges. Digital communication, electronic documents, and online media have reduced the need for many traditional paper products. As demand declines, producers face difficult decisions about capacity utilization, operational efficiency, and the long-term viability of manufacturing facilities.
A forward-looking assessment of the proposed transaction would therefore consider not only its immediate competitive implications but also the market’s structural development and the ability of European producers to maintain a sustainable industrial presence.
Digitalization Continues to Reshape the Graphic Paper Market
According to UPM, European demand for graphic paper has fallen by more than half over the past two decades because of digitalization. The company expects this decline to continue in the coming years, creating further challenges for manufacturers operating in the sector.
Graphic paper is used in applications such as printing, publishing, newspapers, magazines, and other printed communications. As businesses and consumers increasingly adopt digital alternatives, demand for these products has weakened, leaving producers with a smaller market to serve.
This prolonged decline has created pressure across the industry’s production base. Manufacturers must balance their operating capacity against a shrinking market, while continuing to meet customer requirements for product availability, quality, and dependable delivery.
UPM argues that the proposed joint venture would provide a rational response to these conditions. By combining the relevant operations under a joint structure, the companies believe they could facilitate a more orderly adjustment of industry capacity, generate significant efficiencies, and maintain reliable supplies for customers.
The transaction is presented as a response to long-term market realities rather than simply a measure to address short-term business pressures. UPM believes a more coordinated approach could help the European graphic paper sector adapt to lower demand while retaining an effective industrial supply base.
Concerns About Future Production Capacity and Customer Supply
UPM has warned that the outlook for Europe’s graphic paper industry could become increasingly difficult if the proposed joint venture does not proceed. The company expects European producers to face mounting pressure as demand continues to decline and excess production capacity remains in the market.
Under this scenario, further capacity closures could occur as manufacturers seek to align production with market requirements. UPM argues that such closures could happen in a less orderly manner, potentially narrowing the range of paper grades available from European suppliers.
The company also warns that customers could become more dependent on imports in the short term if domestic production capacity and product portfolios are reduced significantly. Greater dependence on external suppliers could create additional challenges for customers seeking reliable access to particular paper grades.
Maintaining a competitive European supply base is therefore a central element of UPM’s argument in support of the proposed transaction. The company believes that continued market contraction and persistent overcapacity could make it increasingly difficult for European manufacturers to sustain reliable and competitive operations.
The joint venture is intended to help address these structural challenges through capacity adjustment and operational efficiencies. However, the transaction’s future will depend in part on whether the parties can address the European Commission’s competition concerns to the regulator’s satisfaction.
Transaction Background and Regulatory Approvals
UPM and Sappi announced their plans to establish the graphic paper joint venture in 2025 and signed a definitive agreement for the transaction in May 2026. The proposed combination requires merger control approvals, along with the satisfaction of other applicable closing conditions.
According to the companies, most jurisdictions reviewing the transaction have already granted approval, including China, South Africa, and the United States. The European Commission’s assessment remains an important outstanding regulatory process.
The Commission’s final decision is expected by the end of 2026 or shortly thereafter. The joint venture would become operational following the closing of the transaction, subject to the required approvals and other closing conditions.
Until the regulatory process is completed, UPM and Sappi must continue to address the issues raised during the review. Their analysis of the Letter of Facts and the planned submission of specific remedies are part of those efforts.
Outlook for the European Graphic Paper Industry
The European Commission’s continued concerns introduce further uncertainty into the proposed joint venture, while the parties maintain that the transaction could help the industry respond to long-term structural change.
UPM argues that declining demand, excess capacity, and the risk of further production closures make a forward-looking assessment especially important. The company believes the joint venture could support more orderly capacity adjustment, improve efficiency, and help preserve reliable customer supply as the market contracts.
At the same time, the Commission’s review will determine whether the proposed transaction can proceed under the applicable competition rules and whether the remedies offered by the parties adequately address the regulator’s concerns.
UPM and Sappi are continuing to analyze the Letter of Facts and prepare their response. With the final European decision expected by year-end 2026 or shortly afterward, the coming months will be important for the future of the transaction and the structure of Europe’s graphic paper industry.
The final outcome will shape the next stage of the companies’ plans and provide greater clarity on how the sector may adapt to sustained demand declines, evolving competition policy, and the need to maintain a competitive and reliable European manufacturing base.
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