OREANDA-NEWS. On August 17, 2007 Ilim Group and International Paper have signed a definitive agreement to form a 50:50 joint venture, the largest foreign-domestic alliance in the Russian forest sector, reported the press-centre of Ilim Group.

Ilim Group operates the largest pulp and paper mills located in the European and Siberian regions of Russia (former Ilim Pulp’s Kotlas Pulp and Paper Mill, Bratsk Pulp and Containerboard Mill and Ust-Ilimsk Pulp Mill reorganized into the branches of Ilim Group as a result of their transfer to a single share on 01 July 2007). These mills produce annually more than 2.5 million tons of market pulp, uncoated papers and packaging. The ownership of the mills is consolidated under Russian open joint-stock company Ilim Group, a subsidiary of Ilim Holding S.A.

According to the terms of the agreement, International Paper will purchase 50 percent of Ilim Holding, S.A., for approximately $650 million. Ilim Holding has an enterprise value of approximately $1.6 billion, EBITDA of $212 million for the first six months of 2007 and projected 2007 EBITDA of more than $400 million. The deal received approval from the Russian Federal Antimonopoly Service in June and is expected to close early in the fourth quarter of 2007.

A key element of the proposed joint venture strategy is a long-term investment program in which the joint venture would finance and invest approximately $1.5 billion in Ilim’s four mills over five years. This unprecedented investment in the Russian forest products industry would be used to upgrade equipment, increase production capacity and allow for new high-value products development.

The joint venture will be headquartered in St. Petersburg. Its board of directors will continue to be chaired by Mr. Smushkin and will include four members each from International Paper and Ilim Group. In addition, International Paper’s nomination of IP Senior Vice President Paul Herbert to be the joint venture’s CEO had been accepted.

"We are pleased to announce the beginning of a new stage in Ilim Group’s development. This alliance is an example of co-operation between Russian and international companies towards effective development and processing of Russian forest resources. I hope this alliance will not just give a powerful impetus towards Ilim’s development but will also open the way for the inflow of investment and know-how which our industry so badly needs. Our alliance is a response to global market challenges and the appeals from the Russian President and the Government of Russia. Co-operation sets the pace for increasing the share of value-added products in our industry and propels Russia to its well-deserved place in the global pulp and paper industry", - said Ilim Group Chairman of the Board Zakhar Smushkin.

"After extensive negotiations and due diligence, we remain impressed with Ilim’s performance and potential, and with demand growth in Russia and Asia for our key products", International Paper Chairman and Chief Executive Officer John Faraci said. "Ilim has continued to strengthen its operations and substantially improve its profitability, and we’re investing at an attractive multiple and expect strong returns".

“The alliance between International Paper and Ilim Group will allow us to create value by linking the unique capabilities each partner offers,” said International Paper Senior Vice President and President of IP Europe Mary Laschinger. “International Paper has been a committed part of the Russian forest-products industry since 1999 through the ownership of our Svetogorsk Mill, and we look forward to the opportunity to grow the joint venture, while propelling the development of a sustainable forest products industry in Russia.”

The pulp and paper mill that International Paper currently owns and operates in Svetogorsk (Leningrad Oblast) will not be owned by the joint venture. Similarly, Ilim Pulp’s wood-products enterprises will not be integrated into the joint venture. Instead, on their base Russia’s largest timber-processing holding company is being formed.