The sale, which was announced this morning, includes the purchase of M-real's coated graphic paper mills Kirkniemi and Kangas in Finland, its Stockstadt mill in Germany and its Biberist plant in Switzerland – a total capacity of 1.9m tonnes.

Sappi said the main benefits of the acquisition include the expansion of its woodfree coated products and the increase of its European graphic paper capacity from 2.6m tonnes per annum to 4.5m tonnes per annum.

Sappi chief executive Ralph Boëttger said: "We anticipate that the acquisition will increase profitability, resulting in better returns and improved cash flows for the group.

"This transaction provides significant momentum to the execution of Sappi's stated strategy to become the most profitable company in the pulp, paper and chemical cellulose sectors in which it operates."

The deal is conditional on a number of fulfilments, including approval from the competition authorities.

Kari Jordan, chairman of the M-real board of directors, said: "The transaction will significantly improve M-real's future prospects and is the first major step in European paper industry consolidation in the 21st century.

"The operating environment of the industry will improve, which will be beneficial also for M-real as a future shareholder in Sappi."

Finnish fine paper giant M-real has also said it will stop production of coated fine paper at its Gohrsmühle and Hallein mills in Germany and Austria. This will take out around 0.6m tonnes of capacity in Europe per annum.

M-real's graphic paper business units at its paper mills in Hallein, Gohrsmühle, Reflex and Äänekosko, and the Husum mill's paper machine 8 (PM8), will remain under M-real's ownership.

The Äänekosko paper mill and the Husum mill's PM8 will continue production for Sappi under a long-term contract after the deal is closed.

Earlier this year, Sappi posted a third-quarter operating loss of $23m (£11.5m) for the period ending June 2008, after the fine paper manufacturer was hit by severe input costs.

The results come after a profit of $221m for the three previous months, and an operating profit of $87m in the third quarter last financial year.

In August, Sappi Fine Paper Europe entered into a consultation process to close its Blackburn mill, putting the jobs of 119 staff at risk.

M-real posted a larger than expected second-quarter operating loss for 2008 of €21m (£16.5m) this July.

It recorded sales for the same quarter of €1.07bn, compared with €1.1bn for the first quarter of 2008. Sales for the first six months of the year were €2.16bn compared to €2.25bn the same time a year earlier.