Oct 25, 2006. /Lesprom Network/. Letter of intent to establish a joint venture was signed by Ilim Pulp chairman Zakhar Smushkin and International Paper chairman and CEO John Faraci. The joint venture will be established by acquisition by International Paper of 50% of Ilim Holding, which owns 75% and one share of Ilim Pulp. The total valuation of Ilim Holding in the joint venture is approximately $1.3 billion. The completion of the deal is planned on first quarter 2007. The Group Ilim board of directors would include equal representation – four persons - from International Paper and Ilim Pulp and would be headquartered in St. Petersburg. According to Zakhar Smushkin, joint venture priority activities will be increase of value-added products production: office paper, bleached packaging and corrugated packaging. According to John Faraci, acquisition of a part of Ilim Pulp is one step of two. Investment programme, elaborated by the partners for the joint venture, supposes investments of approximately $1.2 billion in the pulp-and-paper mills over five years, which will be directed in mills’ modernization, increase of production volume by more than 50% and which will allow to develop production of new sort of value-added products. “In fact, we plans to draw down investments during three years”, Zakhar Smushkin specified. He also noted that Ilim Pulp won’t proceed with IPO. “At first we examined other variants of expansion of our presence in Russia. For example, capacity extension at Svetogorsk mill or acquisition of other companies”, John Faraci told Lesprom.ru. “But the alliance of International Paper and Ilim Pulp is like a marriage: we have found each other. The negotiations have been lasted for a long time, but we only entered active phase a year ago.” “International Paper owns Svetogorsk mill for eight years, and I can estimate Russian economy as positive and well developing, and Russian market is very, very perspective. Especially domestic packaging market, demand for which we are likely to fully satisfy”, Mr. Faraci added. “It gives us a possibility to step onto a new, completely different level”, pointed out Zakhar Smushkin, ‘an absolutely different scale of activity. Therefore we can plan strategy in a fully new way. On the subject of possible complaints against the new company coming from Mr. Deripasko’s structures Smushkin marked that no structures affiliated by Mr. Deripasko were found among minor Ilim Holding shareholders. Communication with other shareholders that comprise both physical and juristic persons can only be exercised in law terms, e.g within stock purchase. The pulp and paper industrial complex in Svetogorsk International Paper runs on owner terms will not be included into the united enterprise. Ilim Pulp timber manufactories will also not be factored in Ilim Group: a new timber holding will be formed on their basis. This holding is going to develop independently taking part in the “Reasonable domicile” governmental program. “Money Ilim is going to get can be directed to new projects”, Galina Anchik, Gofro’s marketing director says. “I would not say that this packet of shares is the control one and that Ilim Pulp is not going to exercise control over the company anymore. By Anchik’s suggestions, as a result of the deal Ilim Pulp and International Paper will be able to settle prices. Arkhangelskiy PPM PR director Milena Avada claims that “With the purchase of half- Ilim Pulp International paper will successfully take root in Russian market. This deal is a soft expansion, oriented on company’s business development”. Avada says that competition level within Russian market is going to grow remarkably. Antanta-Capital analyst Anna Krylova marked that present Ilim Pulp owners only can get a momentary financial gain whilst they are the ones selling their holding share. She also thinks IP is unlike to extend their share packet in Ilim pulp, at least not up to the control one. The situation has much more to do with politics: IP already owns the large Svetogorsk manufactory and our government will not pass total control over national timber field to foreign investors”. “For Russian forest industry the acquisition by IP of a stake in Ilim Pulp is a landmark event. It testifies that despite a lot of peculiarities in business franchising in Russian forest industry, which frighten foreign investors, nevertheless, de facto there is a great interest for the industry on the part of foreigners. As for other Russian pulp and paper producers, they will, most likely be nervous seriously: now there will be in Russia a serious player of world level with very good base”, Krylova said.