Africa-Press – South-Africa. Shares in Sappi fell on Friday after the sale of three of its European mills collapsed, delivering a blow to its plan to reduce exposure to the struggling graphic paper market.
By lunchtime, its share price was down more than 4%. The group confirmed that the 272 million euro (about R5.4 billion) sale of three of its mills in the Netherlands, Germany, and Finland to the German investment group Aurelius had lapsed and the transaction will not proceed.
It said the transaction, which was announced in September last year, was subject to the fulfilment of various conditions including the conclusion of a separation and transitional services plan between the two parties.
“Regretfully and notwithstanding extensive efforts by Sappi to structure a reasonable deal, the parties could not conclude the suspensive conditions and therefore the transaction has lapsed.”
Sappi said it still wants to reduce its exposure to graphic paper, and is reviewing its strategic options regarding these mills.
All Weather Capital equity analyst Dumisani Ndlovu said the collapse of the deal is a “net negative” for Sappi as it would reduced its exposed to the graphic paper market which was under pressure in Europe and “facing structural decline”.
The income from the deal would have helped offset the large capex programme it was undertaking in the US, and could have helped to achieve its target of net debt of $1 billion (about R18.2 billion). The company’s net debt is currently at around $1.241 billion.
Still the company had done a really good job since the depths of Covid-19 of protecting its balance sheet until conditions improved by reducing debt, noted Anchor Capital equity analyst Seleho Tsatsi.
Also, it is positive for Sappi that it was not selling these assets out of “any financial distress” but more to optimise its portfolio, said Ndlovu.
But Sappi faces some challenges to find another buyer for the assets. Alternatively, it could convert the mills for other uses, but this will be expensive.
“And given the uncertainty in the current macro environment, putting capital into the ground will always be difficult,” said Ndlovu.
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