The move is in line with the broad consolidation across the industry, which has seen aggressive acquisitions and millions of tonnes of capacity taken out.

Myllykoski Corporation and Rhein Papier haveand estimated  enterprise value of €900m (£765m) comprise seven publication paper mills in Germany, Finland and America, which have an annual production capacity of 2.8m tonnes.

The deal will add €1.6bn to the group's balance sheet assets following the transaction which is expected to close during the second quarter of 2011, subject to customary closing conditions. Myllykoski will continue to operate independently until that time.

Paper giant UPM said the move "strengthens prerequisites for print media success", and that combining forces is "necessary".

UPM president and chief executive Jussi Pesonen said: "With this transaction, we create the conditions needed for improving UPM's cash flow and mid-term profitability.

"Electronic media is posing a growing challenge for the print media. Print media has to be able to respond not only with good content but also with excellent cost competitiveness."

He added that the profitability of the publication paper industry "has been poor for almost 10 years", and that demand growth continues to shift to markets outside of Europe.

Pesonen added that the company's target is cost leadership as well as growth in China and other emerging markets.

A spokesman for UPM said the company could not comment on the impact of the acquisition  on the UK market at this time.

Myllykoski is a family-owned international paper group and it produces uncoated and coated publication papers, including newsprint.

It is understood that Myllykoski holds a 14% share in the European magazine paper market, meaning that if the transaction went ahead, UPM would command a 35% market share in that sector.

UPM announced that it was set to acquire the company in September.