The deal includes two packaging paper machines – one in Pietarsaari and one in Tervasaari, Finland – which currently produce around 300,000 tonnes of packaging papers annually.

Regulatory approval for the transfer of the €220m business is still required, but it is expected to be completed during the second quarter of 2012.

UPM Paper Business Group president Jyrki Ovaska said: "The negotiations with Billerud have proceeded well and we have a shared view on how to make things work. We have every reason to believe that the cooperation within the mill sites will be successful."

The mills’ real estate and key infrastructure in both locations will remain under UPM’s ownership and the two parties have agreed a long-term, market-based, raw material and services supply agreement.

Around 185 packaging department employees will be transferred to Billerud.

Meanwhile, UPM has announced end of year results to 31 December 2011.

The paper giant had a turnover of €10.1bn, up from €8.9bn in 2010, while the fourth quarter turnover increased from €2.4bn to €2.7bn,

However, operating profit was down in the quarter (€131m from €207) and for the full year (€755m to €459m).

President and chief executive Jussi Pesonen said: "Prices of all production inputs increased substantially compared to 2010 but we succeeded in raising prices to cover the cost increases.

"However, during the latter part of the year the deterioration of pulp prices and lower demand for paper and wood products had a clear impact on our profitability. In the label market the weak demand was evident in Europe but solid development continued in other markets."