OREANDA-NEWS. On October 05, 2007 all the necessary agreements have been finalized, and all the conditions required for purchasing of 50 percent stake in Ilim Holding by International Paper have been met, reported the press-centre of Ilim Group.

Thus Ilim Group and International Paper have completed the formation of a joint venture. The largest foreign-domestic alliance in the Russian pulp and paper industry has started its operations.

The companies reached an agreement on joint management of Ilim Group which consolidates the largest pulp and paper mills in Russia. The mills are 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) and now are reorganized into the branches of Ilim Group. These mills produce approximately 2,5 million tons annually of market pulp, uncoated papers and packaging.

The joint venture has formed a new board of directors which includes four members each from Ilim Group and International Paper. Ilim Group is represented by the current members of the Board Zakhar Smushkin, Boris Zingarevich, Mikhail Zingarevich and Leonid Erukhimovich. Board members from International Paper are: Mary Laschinger, Dwight van Inwegen, Cato Ealy and Richard Phillips.

Zakhar Smushkin will chair the board of directors. Former International Paper Senior Vice President of Strategic Initiatives Paul Herbert has been appointed Chief Executive Officer.

The Board of Directors has approved the Company's strategy and business plan which were developed by the partners’ joint efforts. The strategy is directed towards becoming a leader in the domestic industrial and consumer packaging and cut-size paper market and retaining the positions of the leading pulp supplier in the Chinese market.

The value of the deal was about USD 650 million.

The JV has approved and will implement an unprecedented investment program of USD 1,5 billion involving a large-scale upgrade of the existing mills and creation of new production facilities.

The Company will undergo a number of organizational changes, will form geographic and product based business units and reorganize the supply chain and a number of service companies. The changes are intended to increase the Company’s effectiveness and controllability, and improve its standards of corporate governance. The Company will be headquartered in St. Petersburg.

“Today we are opening a new page in the history of Ilim Group and the entire Russian pulp and paper industry. We have formed an alliance which is unprecedented in our sector and I believe will become the centre of dynamic growth of the entire Russian forest products industry. This is a response to global market challenges and the appeals from the Russian President and the Government of Russia. The Company’s products will be able to meet the demand of the growing domestic market for high quality paper and packaging products and also resolve the import replacement problem. In five years' time, every fourth sheet of paper and every third corrugated box in the Russian market will be produced by our Company”, said Zakhar Smushkin, Chairman of Ilim Group.

“The formation of this 50:50 joint venture is a real strategic milestone for International Paper,” said International Paper Chairman and Chief Executive Officer John Faraci. “Both parties bring important strengths and expertise to the JV, and we are very positive about the future success of this new partnership.”

“We are very pleased to begin our partnership with Ilim and work together to continue to grow this business,” said International Paper Senior Vice President and President of International Paper Europe Mary Laschinger. “We believe the joint venture has all the ingredients needed for success: good management, talented, hard-working employees, a solid asset base with improvement potential, and strong supply positions in high-growth markets.”

During the first meeting Ilim Group’ Board of Directors had approved the appointment of a following management team:

Sergey Kostylev, Deputy CEO,
Alexandr Pozdnyakov, Deputy CEO, Managing Director, Ilim West business unit,
Brian McDonald, Deputy CEO, Managing Director, Ilim East business unit,
Yuri Aivazov, Deputy CEO, Managing Director, Corrugated box business unit,
Alexandr Emdin, Deputy CEO, Chief Financial Officer,
John Rankin, Deputy CEO, Managing Director, Manufacturing and Investments,
Yuri Masiyansky, Chief Administration and Human Resources Director,
Alexandr Bass, Chief Managing Director, Supply Chain,
Viktor Atamanov, Managing Director, Strategic Planning and Marketing,
Alexei Lomko, General Counsel and Central Legal,
Alexandr Khromov, Managing Director, Security,
Elena Konnova, Public Relations Director,
Dmitry Chuiko, Government Relations Director,
Igor Tyukov, Board of Directors Administration Officer.

The pulp and paper mill that International Paper currently owns and operates in Svetogorsk (Leningrad Oblast) has not been integrated into the joint venture. Ilim Pulp’s solid wood product enterprises have not been integrated into the joint venture either and instead, Ilim plans to combine these entities to create Russia’s largest solid wood product holding company.