Dec 21, 2010. /Lesprom Network/. UPM-Kymmene Corporation has entered into an agreement to acquire Myllykoski Corporation and Rhein Papier GmbH. The approximate enterprise value of the businesses acquired is Euro 900 million, as the company said in a press release received by Lesprom Network. Myllykoski Corporation and Rhein Papier GmbH consist of seven publication paper mills in Germany, Finland and the United States. The total annual paper production capacity is 2.8 million tonnes. In addition, Myllykoski Corporation owns 0.8% of the Finnish energy company Pohjolan Voima Oy, with an estimated value of Euro 70 million. Following the transaction, UPM Group's balance sheet assets will increase by approximately Euro 1.6 billion. The transaction will be financed through a directed share issue of 5 million UPM shares, with current market value of approximately Euro 60 million, and long-term debt arrangements amounting to Euro 800 million. The transaction is subject to customary closing conditions, including, among others, the approval of the regulatory authorities. Myllykoski will continue to operate independently until the transaction will be closed. The target is to close the transaction during the 2Q 2011. The transaction is estimated to create annual synergy benefits exceeding Euro 100 million mainly from 2012 onwards. Synergy benefits will be reached for the most part by rationalising production, logistics and sourcing as well as reducing overlapping activities. The related restructuring and investment costs of the combined operations are estimated to be approximately Euro 100-150 million. The transaction is estimated to have an immediate positive impact on UPM's cash flow starting from the second half of 2011 and on earnings per share in 2012. After the completion of the transaction, UPM’s gearing ratio is estimated to rise by 8 percentage points. At the end of September 2010, the gearing ratio was 51%. UPM will report from the transaction a one-off gain of approximately Euro 300 million. UPM's President and CEO Jussi Pesonen says that UPM is focused on improving the cost efficiency and profitability of its European paper operations. "With this transaction, we create the conditions needed for improving UPM's cash flow and mid-term profitability.” "Myllykoski is without doubt one of the leading publication paper suppliers. The company has broad-mindedly taken advantage of new business concepts and technologies. We recognise today’s Myllykoski people as solid professionals, who have a strongly customer oriented approach. This attitude and know-how fit very well with UPM.” Profitability of the publication paper industry has been poor for almost ten years already. Demand growth is shifting to markets outside of Europe and the European industry is inefficient. “Combining forces and rationalising production is necessary for the future of the whole industry in Europe. This means both closing unprofitable production capacity and investments in order to increase cost efficiency,” says Pesonen. “Paper is one of UPM's core businesses and our target is undisputed cost leadership as well as growth in China and other emerging markets. However, a balanced development of the different businesses within UPM is also in our interest. As a result of consolidation in the European paper business, we will also have better financial resources to implement our growth plans in our other businesses," says Jussi Pesonen. Myllykoski is a family-owned international paper group. The company produces uncoated and coated publication papers, including newsprint. UPM consists of three Business Groups: Energy and pulp, Paper, and Engineered materials. The Group employs around 23,000 people and it has production plants in 15 countries.