UPM signs agreement on restructuring of Botnia ownership

(UPM, Helsinki, 22 October 2009 at 08:30 EET) – UPM, Metsäliitto Cooperative, M-real Corporation, and Oy Metsä-Botnia Ab (Botnia) have today signed an agreement according to which Metsäliitto's and Botnia's share of the Fray Bentos pulp mill and the eucalyptus plantation forestry company Forestal Oriental in Uruguay will be transferred to UPM. The companies signed a letter of intent concerning the restructuring on 15 July 2009.

The enterprise value of the Fray Bentos pulp mill and Forestal Oriental totals approximately EUR 1.6 billion and the enterprise value of Botnia without the Uruguayan operations and shareholding in Pohjolan Voima Oy is approximately EUR 1.9 billion. UPM will finance the purchase consideration by selling an approximately 30% share in Botnia. In addition, UPM will take over the debt of the Uruguayan operations.

Moreover, UPM will acquire 1.2% of the energy company Pohjolan Voima Oy from Botnia for EUR 66 million.

Following the transaction, Metsäliitto's holding in Botnia will be approximately 50%, M-real's approximately 33%, and UPM's approximately 17%. UPM will have 91% ownership in the Fray Bentos pulp mill and 100% in Forestal Oriental.

Completion of the transaction is subject to, among others, required regulatory approvals and agreements with lenders. These are expected to be finalised, at the latest, during the first quarter of 2010. Botnia will remain to be in charge of the operations of the Fray Bentos pulp mill and Forestal Oriental until the transaction is effective.

Impact of the transaction on UPM's financials and operations

UPM's interest-bearing net debt has been estimated to increase by approximately EUR 350 million. The transaction is expected to have a minor impact on the gearing ratio. The net cash effect of the transaction on UPM will be an outflow of approximately EUR 90 million. The transaction is expected to have a positive impact on UPM's results in 2010.

In the balance sheet in the interim report for January–June, on 30 June 2009, UPM has regrouped the 30% transferable share of Botnia's book value as assets held for sale. Consequently, from July 2009, UPM will not include the share of the transferable Botnia operations in the share of results of associated companies. Post transaction, UPM will record its 17% ownership in Botnia among its financial assets.

"Following the deal, UPM will become a significant pulp producer. Our pulp production capacity will increase from 2.1 million tonnes to 3.2 million tonnes a year, with approximately one third being eucalyptus pulp. The share of plantation-based hardwood pulp in UPM's production will increase significantly, and the ownership of the Uruguayan plantation operations will increase our self-sufficiency in fibres," says Tapio Korpeinen, President of UPM's Energy and pulp Business Group.

On the basis of the 17% holding in Botnia, UPM has a 400,000-tonne share of the pulp production capacity of Botnia's Finnish mills. In addition, Botnia acts as a sales channel for UPM's market pulp.

For more information, please contact:
Mr Tapio Korpeinen, President, Energy and pulp Business Group, UPM, tel. +358 40 730 0090
Mr Jyrki Salo, Executive Vice President and CFO, UPM, tel. +358 204 15 0011

UPM, Corporate Communications
Media Desk, tel. +358 40 588 3284
communications@upm-kymmene.com

UPM's vision is to be the front-runner of the new forest industry. Our competitiveness is based on cost leadership, change readiness and leading innovation. Our products are made of renewable raw materials and are recyclable. UPM consists of three Business Groups: Energy and pulp, Paper, and Engineered materials. The Group employs around 24,000 people and has production facilities in 14 countries. In 2008, UPM's sales amounted to EUR 9.5 billion. UPM's shares are listed on the Helsinki stock exchange. www.upm-kymmene.com

UPM's pulp business area
UPM operates three modern pulp mills in Finland: Kaukas (capacity 740,000 tonnes), Kymi (540,000 tonnes) and Pietarsaari (800,000 tonnes). The annual pulp production capacity of the three mills totals 2.1 million tonnes. The Pulp business area employs around 1,150 people, and sales in 2008 were EUR 944 million.

Once the transaction enters into effect, UPM's annual pulp production capacity will increase from 2.1 million tonnes to 3.2 million tonnes, with approximately a third of this consisting of eucalyptus pulp produced at the Fray Bentos mill. The share of plantation based hardwood pulp in UPM's production will increase significantly.

Fray Bentos pulp mill
Construction of the pulp mill in Uruguay began in 2005 and production started in November 2007. The total investment in the mill came to 1.2 billion US dollars.
The annual capacity of the pulp mill is 1.1 million tonnes of eucalyptus pulp for which the mill uses 3.5 million cubic metres of eucalyptus wood. The pulp mill has around 200 direct employees.
Prior to the transaction, UPM accounted for about the half of the mill's pulp capacity. UPM uses Fray Bentos pulp mainly in its paper mills in China and Central Europe.
The pulp mill in Fray Bentos is among the most modern ones in the world. Designed with the latest technologies available, the mill operates in compliance with the strictest standards set by the European Union and Uruguayan legislation. For further information and pictures, visit www.botnia.com

Forestal Oriental
Forestal Oriental, which specialises in eucalyptus plantations, owns around 180,000 hectares of land in Uruguay, of which around 60% is cultivated plantation land. The company has around 360 employees and roughly 2,400 contractors. Forestal Oriental operates a modern nursery, which produces around 15 million eucalyptus seedlings per year. The company's plantations are FSC-certified.
Forestal Oriental was founded in 1990, when Shell and UPM predecessor company Kymmene started to investigate the possibility of cultivating eucalyptus in Uruguay. Planting started in the late 1990s and wood harvesting in 1997. For further information and pictures, see www.forestaloriental.com.uy