International Paper and Llim Pulp, the largest forest products enterprise in Russia, have signed a letter of intent to establish a 50-50 joint venture, the largest foreign- domestic alliance in the Russian forest sector, it was announced from Moscom on October 25.

The joint venture would be created through International Paper purchasing a 50-percent equity interest in LLim Holding. The total valuation of Llim Holding in the joint venture is approximately $1.3 billion. The joint venture's board of directors would include equal representation from International Paper and Llim Pulp and would be headquartered in St. Petersburg.

Llim Pulp operates four pulp and paper mills located in the European and Siberian regions of Russia. and produces approximately 2.5 million tons annually of market pulp, uncoated papers and packaging. Llim Holding is in the process of consolidating ownership of the individual mills into a single Russian open joint-stock company, Llim Group. a subsidiary of Llim Holding.

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 $1.2 billion in the four mills over approximately five years. This unprecedented investment in the Russian pulp and paper industry would be used to upgrade equipment, increase production capacity by approximately 1 million tons (40 percent), and allow for new high-value product development.

"This joint venture would be attractive to both International Paper and Llim Pulp because it would unite the unique capabilities of both companies and enable us to create more value together than we could individually," International Paper Chairman and Chief Executive Officer John Faraci said. "Beyond that, a joint venture should benefit Russia by significantly propelling the development of a globally competitive sustainable forest products industry in Russia."

He added. "Intemational Paper has been a committed part of the Russian forest-products industry for seven years, through the ownership of our Svetogorsk Mill, and we look forward to continuing to encourage the strategic development of the industry."

Llim Pulp Chairman Zakhar Smushkin said, "This alliance between the Russian and the global industry leaders would align strategies that create unprecedented opportunities for both parties and for the entire Russian forest-products industry. Our joint success would provide Russia a competitive edge over other emerging markets in attracting needed capital to the industry."

The parties plan to finalize the agreement in the first quarter of next year, pending completion of due diligence, receipt of required regulatory approvals and approval by their respective boards.

The pulp and paper mill that Intemational Paper currently owns and operates in Svetogorsk. in the Leningrad region, would remain separate from the joint venture. Similarly, Ilim Pulp's wood-products enterprises would not be integrated into the joint venture and instead, lIim plans to combine these entities to create the country's largest timber-processing holding company.

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