The company said the receipt of the AUD$600m (£296m) initial purchase price will strengthen its financial profile and will also reduce its $500m debt.

Dave Allen, regional president of Paperlinx UK, Ireland and South Africa said the sale would be of "benefit" to the UK and would "release resources to focus on building the global merchanting business".

In addition to sale proceeds, there is an earn-out capped at AUD$100m based on the perfomance of the business over the next three years.

The company expects a 20-25% reduction in sales volumes in the second half of 2009 compared with the previous year.

It also said that full-year divisional EBIT reported before corporate and significant items is expected to be 30-35% lower than in 2008.

Allen said: "Paperlinx UK is clearly affected by the reduction in demand. However, UK operations are profitable and are making a healthy contribution to the overall global results."

As a result of the divestment, Paperlinx has moved away from paper manufacturing and will now focus on its core paper merchanting business.

Allen added that Paperlinx is already the leading global fine paper merchant, whereas in manufacturing it is only a volume player in Australasia. 

He said: "It therefore makes sense to concentrate on a business that is less cyclical and focus on our strengths while continuing to build a global merchandising presence."

The company said current business conditions remain difficult with weak economic conditions impacting sales volumes in all markets.

Allen said: "We will continue to seek operational synergies between our merchanting business and our logistics network DeliveryCo, for example, will continue to be rolled out across all of our UK business. 

"As far as the three paper merchants, Howard Smith, Robert Horne Group and PaperCo are concerned, we will continue to operate our three distinct faces to market."

The sale to Nippon Paper Group excludes the two Tasmanian mills at Burnie and Wesley Vale.