The Sweden-based firm also announced yesterday that falling demand and rising costs had been behind a tough end to what had been a good 12 months as it posted it full year 2011 results.
Billerud said the takeover of UPM by its Finnish subsidiary would reduce its exposure to price fluctuations in the pulp market and realise annual savings in company operations of around SEK 30m by the end of 2013.
In 2011, UPM’s paper packaging unit recorded sales of €220m, with an EBITDA of €18m. It employs 185 workers across two sites.
The facilities at Pietarsaari and Tervasaari have a combined annual sack/kraft paper capacity of 300,000 tonnes and service a range of industries including the food and retail sectors, said Billerud.
As part of the takeover, the firm has signed a long-term agreement which will see UPM deliver key production inputs such as pulp, steam and electricity.
Billerud will buy an annual volume of pulp from UPM equivalent to 85% of its yearly needs. While the price will be a market one, the bulk purchase should insulate it from fluctuations in pulp prices and reduce its exposure to the pulp market, it said.
“We see great potential in the acquired business as it will now be integrated in a business focused on packaging paper,” said Billerud president and CEO Per Lindberg.
He added: “The acquisition will give us a strong platform to continue developing our offering within smarter packaging solutions. In addition, the acquisition significantly reduces our pulp exposure and adds a much larger Euro cost base, which we view positively.”
One-off costs for the buyout this year will be €2.5m. The deal is subject to regulatory approval. In the event the purchase is not completed Billerud has agreed to pay UPM a €5m termination fee.
Tough end to a good year
The company said a strong start to 2011 had trailed off in the final quarter on falling demand and prices. Facility shutdowns – some planned and some due to the demand dip – had also affected results.
Operating profit for Q4 was just under €8.5m, compared to €33m in the previous quarter and €36.5m in the same period last year.
In its packaging board segment, operating profit for the three months to the end of December was €6.6m – half of what they were in both the previous quarter and the Q4 2010.
Sales for the 2011 rose 6% to just over €1bn but operating profit fell by the same amount to €110m. Lower operating profit for the market pulp business area was partly compensated by higher operating profit for the packaging paper segments, said the company.
Lindberg said: “2011 was an interesting and challenging year. It started very positively with high demand and rising prices which resulted in very strong earnings. The year ended more moderately after a fall in demand in the summer and autumn, price pressure on packaging paper, falling pulp prices and decreasing customer stocks.”
The consequence of this was the company’s operating margin in Q4 was just 4%, although it hit its full year target of 10%.
Lindberg said the market for 2012 was showing “signs of stabilising but which remains uncertain and difficult to predict”.
The company forecast continued price pressures on packaging at the start of the year and cautioned that it would implement “market-related shutdowns” if necessary.