UPM-Kymmene acquires Haindl of Germany and sells two Haindl paper mills to Norske Skog

The position as the world's leading magazine paper producer will be strengthened

(Helsinki, 29 May, 2001) - UPM-Kymmene Corporation (HSE: UPM1V, NYSE: UPM) has agreed to acquire 100% of the shares of the German paper producer G. Haindl'sche Papierfabriken KGaA ("Haindl") for a total consideration of EUR 3.64 billion. In addition, UPM-Kymmene will assume Haindl's net financial liabilities of approximately EUR 210 million. The total enterprise value will be EUR 3.85 billion. As a part of the acquisition the Board of Directors of UPM-Kymmene will propose a directed share issue of 12.3 million new shares valued at EUR 419 million to certain Haindl shareholders.

In connection with this transaction, UPM-Kymmene has reached a separate, back-to-back agreement to sell two of Haindl's paper mills, Walsum and Parenco, to the Norwegian paper producer Norske Skog AS for EUR 1.1 billion. This divestiture will most likely result in certain tax costs, currently estimated at EUR 100 million for UPM-Kymmene. Accordingly, the net cash consideration of the Haindl acquisition for UPM-Kymmene will be EUR 2.2 billion.

The transactions are subject to approval by the competition authorities, and are expected to close during this year.

Following the transaction UPM-Kymmene will be a leading local supplier of printing papers in all main European markets with cost effective and state-of-the-art production facilities. The acquisition further enhances UPM-Kymmene's position as the leading global producer of magazine papers. Furthermore, the position in newsprint in Europe strengthens considerably. The acquisition creates significant synergies and an improved balance in fibre-base by increasing substantially the use of recycled fibre.

The four mills acquired are located in Augsburg, Schongau and Schwedt in Germany and Steyrermühl in Austria. Their production capacity is 1.9 million tonnes, of which 930,000 tonnes is newsprint, 590,000 SC paper and 380,000 LWC paper. The acquired mills have eight machines, approximately 60% of the acquired capacity has been built or rebuilt during 1999-2001. Following the transaction, UPM-Kymmene's total paper production capacity will be 11.6 million tonnes, of which 5.5 million tonnes is magazine papers, 2.7 million tonnes newsprint, 2.4 million tonnes fine papers and 0.9 million tonnes speciality papers.

UPM-Kymmene will finance the acquisition from directed share issue, cash flow and debt financing and sale of non-core assets. The gearing ratio after the transaction is estimated to be
below the stated target of maximum 100%. The goodwill arising from the transaction will be amortized over 20 years, resulting in an annual goodwill charge of approximately EUR 110 million. The transaction is expected to be immediately accretive on cash earnings per share (CEPS) and pre-goodwill earnings per share (EPS) basis, and EPS accretive in the year 2003.

The combination of acquired assets of Haindl and UPM-Kymmene is expected to lead to annual synergies of approximately EUR 70 million, fully materialized at the end of 2003. The main sources of the synergies include production optimization between mills, logistics and purchasing and elimination of overlapping activities. In addition, added value can be reached through best practices resulting in more efficient production, sales and marketing.

The new shares will be issued to certain Haindl shareholders (Holzhey and Bischoff families) who have expressed interest in becoming significant shareholders in the enlarged UPM-Kymmene.

Following the acquisition, Georg Holzhey, currently Executive Officer at Haindl, will join the Executive Board of UPM-Kymmene. Fritz Holzhey, also currently Executive Officer at Haindl, will become a member of UPM-Kymmene's Publication Papers' management group.

Juha Niemelä, President and CEO of UPM-Kymmene said: "The industrial logic to this transaction is absolutely compelling. The strong complementarity of both groups' operations in terms of geographic fit and product portfolios is unique. In addition, the acquisition will result in an improved balance of UPM-Kymmene's fibre base. The high quality of Haindl's mills and its skilled workforce will enable us to strengthen our position as one of the leading suppliers of publication papers."

Dr. Clemens Haindl, Speaker of the Executive Management Board of the Haindl Group, stated: "The integration of Haindl into a global acting paper companies guarantees the future of our mills and jobs in the long term. Our employees will work for companies, which belong to the worldwide most competitive and strategical ones of our industry."

Georg Holzhey said: "The Haindl shareholders have found what we believe to be the best solution for the ongoing success and profitability of the Haindl mills within the European paper industry. I and other members of the family are especially pleased by the opportunity to continue on long-term basis in the industry and benefit from the value we expect to be created by the combination with UPM-Kymmene."

The Haindl Group is the largest producer of publication papers in continental Europe and is the world's second largest producer of low cost newsprint. Of the fibre input of the Haindl Group,
60 % comes from recycled paper. Following the recent commissioning of a new 380,000 tonnes LWC machine at the Augsburg mill and the complete rebuild of a 200,000 tonnes SC machine at Schongau, Haindl operates 12 modern paper machines across Germany, Austria and the Netherlands. Total production capacity is 2.7 million tonnes. Augsburg Airways, the regional carrier owned by Haindl is not included in the transaction.

In 2000, Haindl's consolidated sales were EUR 1,673 million, generating operating profit of EUR 261 million and a net profit of EUR 210 million. As of December 31, 2000, total assets of Haindl Group were EUR 2,023 million. On a proforma, unaudited basis, the four mills acquired by UPM-Kymmene generated sales of EUR 968 million in 2000, earnings before depreciation, interest and taxation (EBITDA) of EUR 297 million and employed 2,370 people.

UPM-Kymmene was advised by Merrill Lynch in the transactions.

Notes to the Editors:

At present UPM-Kymmene is the third largest paper producer in the world with a total paper production capacity of 9.7 million tonnes. In 2000, UPM-Kymmene sales amounted to EUR 9,583 million, generating an operating profit of EUR 1,860 million and a net profit of EUR 1,366 million. As at December 31, 2000, total assets of UPM-Kymmene Group were EUR 13,113 million and it employed 32,755 people. The company's product range covers printing papers, converting materials and wood products. The Group has production plants in 15 countries, the most important being in Finland, France, Germany, Great Britain, the United States, Canada and China. The company also has a sales network covering the whole world. UPM-Kymmene's shares are listed on the Helsinki and the New York stock exchanges.


UPM-Kymmene Corporation
Corporate Communications
29 May, 2001


# # #
Forward-looking statement

It should be noted that certain statements herein which are not historical facts, including, without limitation those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by "believes", "expects", "anticipates", "foresees", or similar expressions, are forward-looking statements. Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product development, acceptance of new products or services by the Group's targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the Group's patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the Group's products and the pricing pressures thereto, financial condition of the customers and the competitors of the Group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Group's principal geographic markets or fluctuations in exchange and interest rates.