Offer for Birse Group plc

26th Jun 2006 07:00

Balfour Beatty PLC26 June 2006 Not for release, publication or distribution, in whole or in part, in, into or from Australia, Canada, Japan or the United States Embargoed until 7.00 a.m. (London time) on 26 June 2006 26 June 2006 BALFOUR BEATTY LAUNCHES A £32 MILLION RECOMMENDED CASH OFFER FOR BIRSE GROUP, A LEADING UK REGIONAL CIVIL ENGINEERING COMPANY The acquisition of Birse will further enhance Balfour Beatty's already strongposition in UK civil engineering whilst delivering value for Birse Shareholders HIGHLIGHTS • Recommended cash offer of 16.625 pence per Birse Share. • Balfour Beatty's UK civil engineering operations and Birse combined will create a powerful force in UK civil engineering with a broad and strong regional presence and a high-quality customer base. • The combination of Balfour Beatty and Birse offers significant growth potential based on the strong strategic fit between Birse and Balfour Beatty's UK civil engineering business. • For Birse, the Offer represents a successful conclusion to the review of the Birse Group's options by its board and advisers, prompted by the continuing narrowing of Birse's capital base and relatively high levels of gearing. Balfour Beatty's financial strength will allow the acceleration of the continuing development of Birse's businesses. • The transaction strengthens the Balfour Beatty Group's capabilities in coastal and rail-related civil engineering work and will add to its engineering and project management skills in water and other process sectors. • For Balfour Beatty Shareholders, the transaction is expected to enhance shareholder value and be earnings enhancing* (see note below) in 2007, the first full year following completion of the acquisition of Birse. * The statement as to earnings per share enhancement does not constitute aprofit forecast and should not be interpreted to mean that Balfour Beatty'sfuture earnings per share will necessarily exceed or match those of any prioryear. Commenting on the Offer, Ian Tyler, Chief Executive of Balfour Beatty, said: "The acquisition of Birse is a substantial step in delivering Balfour Beatty'sstated strategy of expanding and strengthening its regional presence in the UKcivil engineering and building sectors. We are confident that by bringing thetwo businesses together, we can accelerate growth and significantly improveperformance. We attach great importance to the skills and experience of Birse's managementand employees, who have made excellent progress towards focusing the business onprofitable activities. We expect them to play an important role in the furtherdevelopment of the enlarged business." Peter Watson, Chairman of Birse, said: "We have always been responsive to the needs of our customers and themarketplace whilst focusing on shareholder value. With opportunities on theincrease in our main infrastructure markets the benefit of the stronger covenantoffered by Balfour Beatty will enable our businesses to take a leading positionin meeting that demand and enhance their service proposition to customers. TheOffer will further support the positive momentum behind our businesses andprovide value for Birse Shareholders together with greater and more variedcareer opportunities for our people within the enlarged Balfour Beatty Group." Not for release, publication or distribution, in whole or in part, in, into or from Australia, Canada, Japan or the United States 26 June 2006 BALFOUR BEATTY LAUNCHES A £32 MILLION RECOMMENDED CASH OFFER FOR BIRSE GROUP, A LEADING UK REGIONAL CIVIL ENGINEERING COMPANY THE OFFER The boards of Balfour Beatty and Birse are pleased to announce that they havereached agreement on the terms of a recommended cash offer to be made by BalfourBeatty for the entire issued share capital of Birse. Under the terms of the Offer, Birse Shareholders will be entitled to receive16.625 pence in cash for each Birse Share. On this basis, the terms of the Offervalue the entire issued share capital of Birse at approximately £32 million. ALoan Note Alternative will be made available. The terms of the Offer represent: • a premium of approximately 23.1 per cent. to the closing mid market price of 13.5 pence per Birse Share on 23 June 2006, being the last business day prior to the announcement of the Offer; • a premium of approximately 35.2 per cent. to the average closing mid market price of 12.3 pence per Birse Share for the three months ended 23 June 2006, being the last business day prior to the announcement of the Offer; and • a price in excess of the highest closing mid market price of a Birse Share since 21 October 2003. RATIONALE AND KEY BENEFITS Balfour Beatty's UK civil engineering business serves public and private sectorcustomers with engineering solutions from minor works through to majorinfrastructure development projects. For the year ended 31 December 2005, thisbusiness reported revenue (including its share of joint ventures) of £425million. Its overall order book at the end of 2005 exceeded £1 billion. Birse provides a range of civil engineering construction services to public andprivate sector customers throughout the UK. Its principal business is in civilengineering, with specialist skills in the coastal, rail and metro sectors andin plant hire. It is also a process engineer providing turnkey design andengineering services and solutions to customers in the water, power and nuclearsectors. For the year ended 30 April 2005, as restated under IFRS, Birse reported revenueof £340.5 million, and profit before tax and exceptional operating items of £2.8million. Balfour Beatty believes that there is compelling strategic logic for theacquisition of Birse, which will strengthen further Balfour Beatty's positionas the UK's leading engineering, construction and services group. Specifically: • the combination of Balfour Beatty's UK civil engineering operations and Birse will create a powerful force in UK civil engineering, broadening and strengthening Balfour Beatty's existing regional presence in England; • Birse will strengthen Balfour Beatty's capabilities, notably in coastal work for Local Authorities and rail-related civil engineering work for the UK rail industry; • Birse will enhance Balfour Beatty's engineering and project management skills, in water as well as other process activities; and • Birse's ongoing building activities, which operate from one branch, focus mainly on educational work in the North of England. This business, which has a good track record in this sector, will be integrated into Mansell, Balfour Beatty's regional building business, and will be an attractive extension of Balfour Beatty's capabilities in this region. Balfour Beatty's management capability and integration expertise will acceleratethe process already well underway at Birse of focusing its operations onactivities in which it has a strong track record and which offer attractivemargins. Balfour Beatty's financial strength will allow these businesses moreeffectively to exploit opportunities in these sectors. The Offer for Birse is expected to enhance shareholder value and be earningsenhancing* (see note below) for Balfour Beatty in 2007, the first full yearfollowing completion of the acquisition of Birse. * The statement as to earnings per share enhancement does not constitute aprofit forecast and should not be interpreted to mean that Balfour Beatty'sfuture earnings per share will necessarily exceed or match those of any prioryear. RECOMMENDATION The Birse Directors, who have been so advised by Rothschild, consider the termsof the Offer to be fair and reasonable. In providing advice to the BirseDirectors, Rothschild has taken into account the commercial assessments of theBirse Directors. Accordingly, the Birse Directors will unanimously recommendBirse Shareholders to accept the Offer. Connected parties of Birse Directors, Peter Watson and Martin Budden, holdingBirse Shares comprised in certain trusts settled by Peter Birse, haveirrevocably undertaken to accept the Offer in respect of their aggregate holdingof 8,000,000 Birse Shares, representing approximately 4.2 per cent. of theissued share capital of Birse. In addition, irrevocable undertakings to accept the Offer have been receivedfrom Peter Birse in respect of 11,115,685 Birse Shares, from Peter Birse andHelen Birse (as trustees) in respect of 12,755,135 Birse Shares which arecomprised in certain trusts, and from HSBC Bank plc in respect of 19,439,838Birse Shares. Accordingly, Balfour Beatty has received irrevocable undertakings in respect of,in aggregate, 51,310,658 Birse Shares, representing approximately 26.7 per cent.of Birse's issued share capital. The irrevocable undertaking from HSBC Bank plcwill cease to be binding if a Higher Competing Offer is made for the BirseShares. Further details of these irrevocable undertakings are set out in section 5 andAppendix II to the attached announcement. This summary should be read in conjunction with the full text of the followingannouncement. Appendix III to the following announcement contains definitions ofcertain terms used in this summary and the following announcement. The OfferDocument and the Form of Acceptance will be posted to Birse Shareholders (otherthan to persons with addresses in any Restricted Jurisdiction), as soon aspracticable and, in any event, within twenty-eight days of this announcementunless otherwise agreed with the Panel. ENQUIRIES:Balfour Beatty Tel: +44 (0) 20 7216 6800Ian Tyler (Chief Executive)Anthony Rabin (Finance Director)Tim Sharp (Head of Corporate Communications) Citigroup Tel: +44 (0) 20 7986 4000(Financial Adviser to Balfour Beatty)Jan SkarbekJames Ireland Hoare Govett Tel: +44 (0) 20 7678 8000(Corporate Broker to Balfour Beatty)Bob PringleNeil Collingridge Gainsborough Tel: +44 (0) 20 7190 1700(PR Adviser to Balfour Beatty)Duncan MurrayAndy Cornelius Birse Tel: +44 (0) 1302 768 078Martin Budden (Group Managing Director)Gerry Roche (Group Finance Director) Rothschild Tel: +44 (0)113 200 1900(Financial Adviser to Birse)David ForbesDavid Wilton JP Morgan Cazenove Tel: +44 (0) 20 7588 2828(Corporate Broker to Birse)Steve BaldwinJonathan Walker Financial Dynamics Tel: +44 (0) 20 7831 3113(PR Adviser to Birse)Sally Lewis Citigroup, which is authorised and regulated by the Financial ServicesAuthority, is acting exclusively for Balfour Beatty and no one else inconnection with the Offer and this announcement and will not be responsible toanyone other than Balfour Beatty for providing the protections afforded toclients of Citigroup or for providing advice in connection with the Offer orthis announcement or any matter referred to herein. Rothschild, which is authorised and regulated by the Financial ServicesAuthority, is acting exclusively for Birse and no one else in connection withthe Offer and this announcement and will not be responsible to anyone other thanBirse for providing the protections afforded to clients of Rothschild or forproviding advice in connection with the Offer or this announcement or any matterreferred to herein. This announcement is for informational purposes only and does not constitute anoffer to sell or invitation to purchase any securities or the solicitation ofany vote for approval in any jurisdiction, nor shall there be any sale, issue ortransfer of the securities referred to in this announcement in any jurisdictionin contravention of applicable law. The Offer will be made solely by the OfferDocument and the Forms of Acceptance accompanying the Offer Document, which willcontain the full terms and conditions of the Offer, including details of how theOffer may be accepted. This announcement has been prepared for the purpose of complying with Englishlaw and the City Code and the information disclosed may not be the same as thatwhich would have been disclosed if this announcement had been prepared inaccordance with the laws of jurisdictions outside the United Kingdom. Therelease, publication or distribution of this announcement in certainjurisdictions may be restricted by law. Persons who are not resident in theUnited Kingdom or who are subject to other jurisdictions should informthemselves of, and observe, any applicable requirements. The Offer will not be made, directly or indirectly, in, into or from aRestricted Jurisdiction where to do so would violate the laws in thatjurisdiction, and the Offer is not capable of acceptance from or within aRestricted Jurisdiction. Accordingly, copies of this announcement and alldocuments relating to the Offer are not being, and must not be, directly orindirectly, mailed or otherwise forwarded, distributed or sent in, into or froma Restricted Jurisdiction where to do so would violate the laws in thatjurisdiction, and persons receiving this announcement and all documents relatingto the Offer (including custodians, nominees and trustees) must not mail orotherwise distribute or send them in, into or from such jurisdictions as doingso may invalidate any purported acceptance of the Offer. The availability of theOffer to Birse Shareholders who are not resident in the United Kingdom may beaffected by the laws of the relevant jurisdictions in which they are resident.Persons who are not resident in the United Kingdom should inform themselves of,and observe, any applicable requirements. The Loan Notes to be issued in connection with the Offer have not been, nor willthey be, listed on any stock exchange and have not been, nor will they be,registered under the Securities Act or under any relevant laws of any state orother jurisdiction of the United States, nor have clearances been, nor will theybe, obtained from the securities commission or similar authority of anyprovince, territory or jurisdiction of Canada and no prospectus has been, orwill be, filed, or registration made, under any securities law of any provinceor territory of Canada, nor has a prospectus in relation to the Loan Notes been,nor will one be, lodged with, or registered by, the Australian Securities andInvestments Commission, nor have any steps been taken, nor will any steps betaken, to enable the Loan Notes to be offered in compliance with applicablesecurities laws of Japan. Accordingly, unless an exemption under relevantsecurities laws is available, the Loan Notes may not be offered, sold, resold,delivered or transferred, directly or indirectly, in or into a Loan NoteRestricted Jurisdiction in which an offer of the Loan Notes would constitute aviolation of the relevant laws of, or require registration thereof in, suchjurisdiction or to, or for the account or benefit of, a person located in a LoanNote Restricted Jurisdiction. In accordance with normal UK market practice, Balfour Beatty or its nominees orbrokers (acting as agents) may from time to time make certain purchases of, orarrangements to purchase, Birse Shares outside the United States, other thanpursuant to the Offer, before or during the period in which the Offer remainsopen for acceptance. These purchases may occur either in the open market atprevailing prices or in private transactions at negotiated prices. Anyinformation about such purchases will be disclosed as required in the UK. This announcement contains statements about Balfour Beatty and Birse that are ormay be forward looking statements. All statements other than statements ofhistorical facts included in this announcement may be forward lookingstatements. Without limitation, any statements preceded or followed by or thatinclude the words "targets", "plans" "believes", "expects", "aims"," intends", "will", "may", "anticipates", "estimates", "projects" or, words or terms ofsimilar substance or the negative thereof, are forward looking statements.Forward looking statements include statements relating to the following: (i)future capital expenditures, expenses, revenues, earnings, synergies, economicperformance, indebtedness, financial condition, dividend policy, losses andfuture prospects; (ii) business and management strategies and the expansion andgrowth of Balfour Beatty's or Birse's operations and potential synergiesresulting from the Offer; and (iii) the effects of government regulation onBalfour Beatty's or Birse's business. Such forward looking statements involve risks and uncertainties that couldsignificantly affect expected results and are based on certain key assumptions.Many factors could cause actual results to differ materially from thoseprojected or implied in any forward looking statements. Due to suchuncertainties and risks, readers are cautioned not to place undue reliance onsuch forward looking statements, which speak only as of the date hereof. BalfourBeatty and Birse disclaim any obligation to update any forward looking or otherstatements contained herein, except as required by applicable law. Dealing Disclosure Requirements Please note that certain aspects of the rules on disclosure of the Code havechanged since 20 May 2006. The following represents a current summary of theposition. Under the provisions of Rule 8.3 of the Code, if any person is, or becomes, "interested" (directly or indirectly) in 1 per cent. or more of any class of "relevant securities" of Birse, all "dealings" in any "relevant securities" ofBirse (including by means of an option in respect of, or a derivative referencedto, any such "relevant securities") must be publicly disclosed by no later than3.30 pm (London time) on the London business day following the date of therelevant transaction. This requirement will continue until the date on which theOffer becomes, or is declared, unconditional as to acceptances, lapses or isotherwise withdrawn or on which the "offer period" otherwise ends. If two ormore persons act together pursuant to an agreement or understanding, whetherformal or informal, to acquire an "interest" in "relevant securities" of Birse,they will be deemed to be a single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the Code, all "dealings" in "relevantsecurities" of Birse by Balfour Beatty or Birse, or by any of their respective "associates", must be disclosed by no later than 12.00 noon (London time) on theLondon business day following the date of the relevant transaction. A disclosure table, giving details of the companies in whose "relevantsecurities" "dealings" should be disclosed, and the number of such securities inissue, can be found on the Panel's website at www.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marks are defined in the Code, which can also be found on thePanel's website. If you are in any doubt as to whether or not you are requiredto disclose a "dealing" under Rule 8, please contact an independent financialadviser authorised under the Financial Services and Markets Act 2000, consultthe Panel's website at www.thetakeoverpanel.org.uk or contact the Panel ontelephone number +44 (0) 20 7638 0129; fax +44 (0) 20 7236 7013. Not for release, publication or distribution, in whole or in part, in, into or from Australia, Canada, Japan or the United States Embargoed until 7.00 a.m. (London time) on 26 June 2006 26 June 2006 BALFOUR BEATTY LAUNCHES A £32 MILLION RECOMMENDED CASH OFFER FOR BIRSE GROUP, A LEADING UK REGIONAL CIVIL ENGINEERING COMPANY 1. Introduction The boards of Balfour Beatty and Birse are pleased to announce that they havereached agreement on the terms of a recommended cash offer to be made by BalfourBeatty for the entire issued share capital of Birse. The Birse Directors will unanimously recommend Birse Shareholders to accept theOffer. 2. The Offer The Offer will be made on and subject to the terms and conditions summarisedbelow and set out in Appendix I to this announcement and to be set out in fullin the Offer Document and, in the case of Birse Shares held in certificatedform, the Form of Acceptance which will accompany the Offer Document. The Offerwill be made on the following basis: for each Birse Share 16.625 pence in cash The Offer values the entire issued share capital of Birse at approximately £32million. A Loan Note Alternative will be made available, further details ofwhich are set out below. The board of Birse has agreed not to recommend a final dividend in respect ofthe year ended 30 April 2006 and that decision is reflected in the offer price. These terms represent: • a premium of approximately 23.1 per cent. to the closing midmarket price of 13.5 pence per Birse Share on 23 June 2006, being the lastbusiness day prior to the announcement of the Offer; • a premium of approximately 35.2 per cent. to the average closingmid market price of 12.3 pence per Birse Share for the three months ended 23June 2006, being the last business day prior to the announcement of the Offer;and • a price in excess of the highest closing mid market price of aBirse Share since 21 October 2003. 3. Recommendation The Birse Directors, who have been so advised by Rothschild, consider the termsof the Offer to be fair and reasonable. In providing advice to the BirseDirectors, Rothschild has taken into account the commercial assessments of theBirse Directors. Accordingly, the Birse Directors will unanimously recommendBirse Shareholders to accept the Offer. 4. Loan Note Alternative As an alternative to all or some of the cash consideration of 16.625 pence perBirse Share, Birse Shareholders (other than any Birse Shareholders in any LoanNote Restricted Jurisdiction) who validly accept the Offer will be able to electto receive Loan Notes issued by Balfour Beatty on the following basis: for each £1 of cash consideration £1 nominal value of Loan Notes The Loan Note Alternative will be conditional upon the Offer becoming or beingdeclared unconditional in all respects. The Loan Note Alternative will remainopen for acceptance until the Offer closes. The Loan Notes will be issued by Balfour Beatty, credited as fully paid, inamounts and integral multiples of £1 and the balance of any entitlement that isnot a whole multiple of £1 will be disregarded and not issued. The Loan Noteswill be guaranteed as to the payment of principal and interest by HSBC Bank plcbut will otherwise be unsecured. The Loan Notes will bear interest at 0.75 percent. below six-month sterling LIBOR to be determined on the first business dayof each interest period. Interest will be payable by half-yearly instalments inarrear (less any tax) on 30 June and 31 December in each year (the "InterestPayment Date") or, if such a day is not a business day, on the immediatelypreceding business day. The first payment of interest will be made on 31December 2006 (the "First Payment Date"). On the First Payment Date, interest will be paid in respect of the period from(and including) the date of issue of the relevant Loan Notes to (but excluding)the First Payment Date. The Loan Notes will be redeemable in whole or in partfor cash at par at the option of noteholders on the first Interest Payment Datewhich falls more than six months after the date of issue of the Loan Notes andthereafter on any Interest Payment Date. If not previously redeemed, the finalredemption date will be 31 December 2009. Any Loan Notes outstanding on thefinal redemption date will be redeemed at par (together with any accruedinterest) on that date. No Loan Notes will be issued by Balfour Beatty unless, on or before the date onwhich the Offer becomes or is declared unconditional in all respects, theaggregate nominal value of all Loan Notes to be issued as a result of validelections for the Loan Note Alternative exceeds £500,000. If such aggregate isequal to or less than £500,000, any such election shall, unless Balfour Beattydecides otherwise, be void and, provided the acceptance of the Offer isotherwise valid, the relevant Birse Shareholders will be deemed to have acceptedthe Offer for cash. Balfour Beatty will have the right to redeem all of the LoanNotes if the aggregate nominal value of outstanding Loan Notes is equal to orfalls below £500,000 at any time during their term. The Loan Notes will not generally be transferable, and no application will bemade for them to be listed on, or dealt on, any stock exchange or other tradingfacility. The Loan Notes and the Loan Note Instrument constituting them will begoverned by and construed in accordance with English law. Further details of the Loan Notes and the Loan Note Alternative will becontained in the formal Offer Document. 5. Irrevocable undertakings Balfour Beatty has received irrevocable undertakings to accept the Offer fromconnected parties of Birse Directors, Peter Watson and Martin Budden, holdingBirse Shares comprised in certain trusts settled by Peter Birse, in respect oftheir aggregate holding of 8,000,000 Birse Shares (representing approximately4.2 per cent. of the issued share capital of Birse). These undertakings willremain binding even if a higher competing offer is made for Birse, unless theOffer lapses or is withdrawn. Peter Birse has also given an irrevocable undertaking to accept the Offer inrespect of his holdings (beneficial and non-beneficial) of 11,115,685 BirseShares in aggregate (representing approximately 5.8 per cent. of the issuedshare capital of Birse). Balfour Beatty has also received irrevocableundertakings from Peter Birse and Helen Birse (as trustees) of the Birse Shareswhich are comprised in certain trusts to accept the Offer in respect of theirholdings (as trustees) of 12,755,135 Birse Shares in aggregate (representingapproximately 6.6 per cent. of the issued share capital of Birse). Theseundertakings will remain binding even if a higher competing offer is made forBirse, unless the Offer lapses or is withdrawn. HSBC Bank plc has given an irrevocable undertaking to accept the Offer inrespect of its holding of 19,439,838 Birse Shares (representing approximately10.1 per cent. of the issued share capital of Birse). This undertaking willcease to be binding in the event of a Higher Competing Offer. In summary, therefore, Balfour Beatty has received irrevocable undertakings toaccept the Offer in respect of 51,310,658 Birse Shares in aggregate,representing approximately 26.7 per cent. of the issued share capital of Birse. Further details of these irrevocable undertakings are set out in Appendix II tothis announcement. 6. Background to and reasons for the Offer Balfour Beatty believes that there is compelling strategic logic for theacquisition of Birse, which will strengthen further Balfour Beatty's positionas the UK's leading engineering, construction and services group. Specifically: • the combination of Balfour Beatty's UK civil engineeringoperations and Birse will create a powerful force in UK civil engineering,broadening and strengthening Balfour Beatty's existing regional presence inEngland; • Birse will strengthen Balfour Beatty's capabilities, notably incoastal work for Local Authorities and rail-related civil engineering work forthe UK rail industry; • Birse will enhance Balfour Beatty's engineering and projectmanagement skills, in water as well as other process activities; and • Birse's ongoing building activities, which operate from onebranch, focus mainly on educational work in the North of England. This business,which has a good track record in this sector, will be integrated into Mansell,Balfour Beatty's regional building business, and will be an attractive extensionof Balfour Beatty's capabilities in this region. Balfour Beatty's management capability and integration expertise will acceleratethe process already well underway at Birse of focusing its operations onactivities in which it has a strong track record and which offer attractivemargins. Balfour Beatty's financial strength will allow these businesses moreeffectively to exploit opportunities in these sectors. Birse's business will be integrated with Balfour Beatty's existing domesticoperations. Balfour Beatty's executive and regional management teams havedemonstrated successful acquisition integration in recent years, through theacquisitions of Mansell in the UK building sector, and John Kennedy and Kentonsin the UK utilities sector, amongst others. 7. Background to the recommendation Over recent years significant progress has been made in repositioning the BirseGroup. Birse has focused its operations on attractive sectors such as civilsand rail and London Underground infrastructure projects and specialist water andprocess engineering sectors in which it can operate with an acceptable balanceof reward and risk. It has withdrawn from the majority of its building businessand has resolved many of the legacy contract issues in this area. Birse has successfully introduced a corporate culture based upon customer focusand understanding customer requirements and matching the demands of thosecustomers with its own underlying competencies. Its operations have also beenrestructured with emphasis upon subsidiary autonomy whilst also maintainingappropriate levels of operational risk management. This progress and underlying forward momentum has been achieved despite Birsehaving a narrowing capital base and relatively high levels of gearing consistingprimarily of short term borrowings. For the year ended 30 April 2005, Birsereported revenue of approximately £340.5 million. The Interim Results disclosednet assets of approximately £0.6 million and net debt of approximately £8.4million as at 31 October 2005. This net debt consisted of an overdraft ofapproximately £18.6 million, net of deposits of approximately £10.2 million. Thelevel of net debt fluctuates within a relatively wide range reflecting thenormal working capital requirements inherent in the Birse Group's tradingoperations. In the Interim Results as at 31 October 2005, Birse reported that it wascontinuing to make progress towards its target of eliminating material losses inits curtailed building business by 30 April 2007 and was actively looking atoptions to accelerate that process. Since that time it has emerged that themost efficient and economical approach to adopt involves cutting ongoingoverhead costs particularly in the area of commercial management, and securingcommercial closedown of contract balances and related assets from theperspective of optimising net cash flows as opposed to profit maximisation. As aconsequence of this approach, the book value of assets in terms of actualrecoveries is likely to be compromised and, in turn, will give rise toadditional provisioning, which will result in a significant and materialincrease in the level of losses which will be reported for the year ended 30April 2006 in respect of the curtailed building business, thereby affectingBirse's consolidated balance sheet. The Birse Directors believe that the continuing narrowing of Birse's capitalbase combined with its net debt position may in the future impact adversely uponBirse's ability to generate new business and hence increase the risk to Birse'scontinued progress. It is against this background that the Birse Directors and their advisersconsidered the options available to Birse, including the possibility of a saleto a larger and well capitalised group. As part of this process, the BirseDirectors received a proposal from Balfour Beatty. The Birse Directors were ofthe view that this proposal was sufficiently credible and attractive to enterinto the formal discussions that have now led to the Offer. In considering whether the Offer is fair and reasonable to Birse Shareholders,the Birse Directors have considered: • that the Offer represents a premium of approximately 23.1 percent. to the closing mid market price of 13.5 pence per Birse Share on 23 June2006, being the last business day prior to the announcement of the Offer; • that the Offer represents a premium of approximately 35.2 percent. to the average closing mid market price of 12.3 pence per Birse Share forthe three months ended 23 June 2006, being the last business day prior to theannouncement of the Offer; • that the Offer is in excess of the highest closing mid marketprice of a Birse Share since 21 October 2003; • that the Offer provides immediate and certain benefits againstthe uncertain potential future return from remaining a Birse Shareholder givenits narrowing capital base, relatively high levels of gearing and the consequentuncertainties concerning its ability to generate new business; and • that Birse will become part of a much larger group, providing theopportunity for its ongoing operations to accelerate and build upon thepositive progress made to date. Accordingly, the Birse Directors have concluded that the terms of the Offer arefair and reasonable and they will unanimously recommend Birse Shareholders toaccept the Offer. 8. Information on Birse Birse is a provider of regional construction and engineering services to publicand private sector customers with a comprehensive range of activities in the UK.Birse offers a wide range of construction and engineering services, from processengineering and infrastructure projects through to smaller building and civilengineering works. In recent years, there has been a radical change in the nature and shape of theBirse business, successfully withdrawing from the general building sector andfocusing on the development of its civil and process engineering businesses,which included the establishment of a multi-disciplinary in-house designcapability. Birse has four business sectors in its ongoing operations: • Civil Engineering: provides a comprehensive range of civilengineering services and related disciplines for small to medium sized projectsdelivered via a network of regional offices in the Midlands, Northern Englandand the South East. It also has a specialist office focused on coastal defenceworks and businesses dedicated to the rail infrastructure and London Undergroundsectors; • Process Engineering: working in conjunction with the CivilEngineering division, Process Engineering provides turnkey design andengineering services and solutions to clients in the water, power and nuclearsectors. Using its in-house multi-disciplinary design capability, Birse ProcessEngineering has established a leading position in the design and development ofodour control solutions for the wastewater sector; • Building: provides building services mainly to local authorityand education sector clients in the North of England; and • Plant Hire: operating under the BPH Equipment brand, the divisionhires heavy duty crawler cranes and piling equipment mainly to UK civilengineering contractors. In addition, Birse has curtailed operations ("Curtailed Operations") comprising: • Commercial Property, which now represents the collection ofoutstanding contingent consideration in respect of one commercial propertydevelopment; • The Cabin Company Limited, the business and certain assets ofwhich were sold on 9 May 2005; and • Residual legacy general building contracts that were undertakenby Birse Build which is being closed down. For the year ended 30 April 2005, as restated under IFRS, Birse reported revenueof £340.5 million, profit before tax and exceptional operating items of £2.8million, and as at 30 April 2005 had net assets of £12.4 million and grossassets of £141.9 million. In the six months to 31 October 2005 as reported underIFRS, Birse reported revenue of £154.1 million, loss on ordinary activitiesbefore tax and exceptional operating items of £4.2 million, and at 31 October2005 had net assets of £0.6 million and gross assets of £148.3 million. 9. Current trading and prospects of the Birse Group Ongoing operations Birse's Interim Results for the six months ended 31 October 2005 reported thatthe prospects for advances in the second half of the financial year wereencouraging with major contract starts and other productivity increasesunderway. These expectations have materialised with turnover levels in thesecond half running ahead of the first half by some £45 million, of which £40million has been generated from Birse's civil engineering activities, its mostprofitable area of operations. With order book levels largely being maintainedand demand expected to increase across the UK infrastructure sector, Birse'songoing operations are well positioned, subject to the uncertainties referred toabove, to continue the forward momentum already established. Engineering: Civil Engineering Birse's civil engineering activities are undertaken by Birse Civils Limited ("Birse Civils"), Birse Metro Limited ("Birse Metro") (a dedicated LondonUnderground business) and Birse Rail Limited ("Birse Rail"). Since 31 October 2005, Birse Civils has increased production to record levelswith monthly turnover reaching £20 million and has been working at nearcapacity. With demand expected to increase, particularly in the South, avoidingover-stretching has now become a key management issue. Birse's strategy in thisrespect is to focus on established customers and ensure that their expectationsare met. Criteria for targeting projects from new customers have thereforehardened. Work on its largest contract, a coastal defence project at Blackpool,is ahead of schedule. Birse Civils is now a leading operator in this sector withfurther contract awards secured at Wyre and Weston-super-Mare. Birse Metro operates exclusively in the London Underground environment workingfor Tubelines and Metronet (the "Infracos"), and London Underground. Since theInfracos took over responsibility for the maintenance and modernisation of theUnderground environment, demand has been relatively low, with the period betweenan enquiry for work and work commencing abnormally long compared to othersectors of the market. Opportunities, however, have begun to crystallise at afaster rate with Birse Metro competing on each of the second set of stationmodification packages put out to tender by Tubelines, and also examiningopportunities from Metronet and its sister operations that in the past have notbeen accessible to it. As previously reported, in February 2005 Birse Rail was awarded two five-yearframework contracts by Network Rail. In the immediate aftermath, the focus ofefforts was upon setting up the appropriate business infrastructure required tomeet the future production outputs required by this customer. Hence, in thefirst half of the financial year to 30 April 2006 activity levels weredepressed. However, in the second half, particularly in the last quarter, BirseRail has been working at near capacity to achieve project deliveries within thetimescales determined by its customer. In all material cases those timescaleshave been met. Engineering: Process Engineering Having suffered subdued demand from key water customers as a result of thecyclical impact of the regulatory price reviews to which the UK Water Industryis subjected, since 31 October 2005 Birse Process Engineering Limited ("BirseProcess") has made good progress, having commenced work on site at Mogden, itsmajor odour control project for Thames Water, and has seen an increase inenquiries from other water companies. Regarding its other key area of operations, electrical power upgrades, BirseProcess has received additional orders in respect of its large scale project toupgrade power supply capacity in relation to the Channel Tunnel Rail Link whichmeans that work on that project will continue into the second half of thefinancial year ending 30 April 2007. The business has also been one of thefirst recipients of contract awards from the newly formed nuclearde-commissioning companies. With many of the skills and capabilities associatedwith the water sector transferable into this marketplace, Birse Process islooking to position itself in a sector where future expenditure is expected toincrease significantly. Construction: Building Birse's ongoing build operations function completely independently of thosecurtailed build divisions that are in the process of closedown. The BirseDirectors believe that the net operating margins for this business benchmarkwell against comparable businesses. The business has increased its order bookto the extent that the value of secured work as at 30 April 2006 exceeds theturnover achieved in the year ended on that date. Plant Hire As at 31 October 2005 it was reported that BPH Equipment Limited ("BPH") hadbeen faced with very weak market conditions. Since that time, in line withactivity in the infrastructure sector, demand has increased gradually each monthwhereby the value of hires achieved by BPH in the last quarter of Birse'sfinancial year ended 30 April 2006 exceeded those relating to the first quarterof that year by 20 per cent. This positive trend is expected to continue intothe current year. Curtailed Operations Commercial Property The only turnover and profit that may accrue in the future will relate tocontingent consideration in respect of contracted sales in the past. Nomaterial value has accrued in the financial year ended 30 April 2006 and nomaterial value is expected to accrue in the future. Plant Hire The sale of the business and certain assets of The Cabin Company Limited wascompleted on 9 May 2005. Construction - Building As previously announced and reported by Birse, the process of litigation withCIB Properties Limited arising from the adjudication relating to the terminationof the contract for construction services for a new data centre facility atRiverdale, Lewisham (referred to as the "Citibank Litigation") was settled in2005, thereby removing the risk and uncertainty associated with that process. As detailed above, the impact of cutting ongoing overhead costs and acceleratingthe commercial closedown of contract balances within those divisions of BirseBuild Limited that are in the process of closedown, is likely to compromise thebook value of assets in terms of actual recoveries. Prospects Birse's ongoing operations continue to progress in a positive manner. Withdemand from the UK infrastructure sectors expected to increase, the prospectsfor these ongoing businesses are encouraging. However, these favourableprospects need balancing against the background of a narrowing capital base,Birse's net debt position and the uncertainties and risks that go hand in handwith that financial position. 10. Information on Balfour Beatty Balfour Beatty is a world-class engineering, construction and services group,which creates and cares for infrastructure for governments, utilities andprivate sector customers. The Balfour Beatty Group serves the internationalmarkets for rail, road and utility infrastructure, buildings and complexstructures. The Balfour Beatty Group focuses and invests in businesses withsuperior long-term growth characteristics, which deliver superior value toshareholders. Balfour Beatty has four divisions: • Building, Building Management and Services - Balfour Beatty is aspecialist in the design, construction, equipping, maintaining and management ofbuildings and selected aspects of their internal environment. Operations includeBalfour Beatty Construction, which designs and constructs buildings, Mansell,the specialist regional construction and property service provider, BalfourKilpatrick, the electrical engineering and mechanical services contractor, HadenYoung, the building services company, Haden Building Management, the buildingand facilities management company and Heery International, the US architectural,engineering and programme management business; • Civil and Specialist Engineering and Services - Balfour Beatty isa leading provider of civil and other specialist engineering, design andmanagement services, principally in transport, energy and water sectors, withoperations in the UK, US and Hong Kong. Its activities range from projectmanagement, major project design and engineering to long-term highway managementand maintenance; • Rail Engineering and Services - Balfour Beatty is aninternational leader in the design, construction, equipping, maintenance,management and renewal of rail assets and systems; and • Investments and Developments - Balfour Beatty is a leadinginvestor in privately-funded infrastructure projects and developments inselected sectors in the UK. Balfour Beatty specialises in healthcare, educationand road and rail transportation. As at 23 June 2006 (the last business day before this announcement), BalfourBeatty had an equity market capitalisation of approximately £1,413 million. Forthe year ended 31 December 2005, Balfour Beatty reported revenue (includingBalfour Beatty's share of joint ventures and associates) of £4,938 million,profit before tax and exceptional items of £134 million and net assets of £292million. 11. Financial effects of the Offer The Offer for Birse is expected to enhance shareholder value and be earningsenhancing* (see note below) for Balfour Beatty in 2007, the first full yearfollowing completion of the acquisition of Birse. The Offer will be funded through a combination of cash in hand and drawingsunder existing £400 million committed facilities. It is expected that, consistent with Balfour Beatty's existing approach, BalfourBeatty will adjust the balance sheet of Birse in accordance with BalfourBeatty's existing accounting policies. These adjustments will include thewritedown of all unagreed income, alignment of contract accounting policies andrecognition of the pension deficit. * The statement as to earnings per share enhancement does not constitute aprofit forecast and should not be interpreted to mean that Balfour Beatty'sfuture earnings per share will necessarily exceed or match those of any prioryear. 12. Management, employees and locations Balfour Beatty attaches great importance to the skills and experience of theexisting management and employees of Birse, who will play an important role inthe further development of the enlarged business. Balfour Beatty also believes that the Birse employees will benefit from abroader range of opportunities for personal and professional development as partof a larger, more diverse and financially stronger group. The Balfour Beatty Directors have given assurances to the Birse Directors that,following the Offer becoming effective, the existing contractual employmentrights of all employees of the Birse Group will be safeguarded. 13. Pensions Birse will continue to make regular contributions to Birse's pension scheme tofund the cost of ongoing benefits. In addition, Birse has already agreed withthe Birse trustees to make further contributions in order to address the schemedeficit. Balfour Beatty will discuss with the Birse trustees the future fundingbasis for the scheme. 14. Financing Balfour Beatty will fund the Offer through a combination of cash in hand anddrawings under existing £400 million committed facilities. Citigroup, financialadviser to Balfour Beatty, is satisfied that sufficient resources are availableto satisfy in full the cash consideration payable to Birse Shareholders underthe terms of the Offer. 15. Break fee Birse and Balfour Beatty have agreed that Birse will pay to Balfour Beatty a feeof one per cent. of the value of the Offer (exclusive of value added tax to theextent that such value added tax is recoverable by Birse) if, prior to thewithdrawal or lapse of the Offer, a higher competing offer for Birse isannounced and such offer subsequently becomes or is declared unconditional inall respects or is otherwise completed. 16. Compulsory acquisition, de-listing and cancellation of trading If Balfour Beatty receives acceptances under the Offer in respect of, orotherwise acquires, 90 per cent. or more of the Birse Shares to which the Offerrelates, Balfour Beatty intends to exercise its rights pursuant to theprovisions of Schedule 2 of the Interim Implementation Regulations to acquirecompulsorily any remaining Birse Shares to which the Offer relates. It is intended that, following the Offer becoming or being declaredunconditional in all respects, and subject to applicable requirements of theLondon Stock Exchange and/or the UKLA, Balfour Beatty will procure that Birsewill apply to the London Stock Exchange and the UKLA for cancellations,respectively, of the trading of the Birse Shares on the London Stock Exchangeand of the listing of the Birse Shares on the Official List. 17. Disclosure of interests in Birse Neither Balfour Beatty, nor any director of Balfour Beatty, nor, so far asBalfour Beatty is aware, any person acting in concert with Balfour Beatty isinterested in or has any rights to subscribe for any Birse Shares, nor does anysuch person have any short position or any arrangement in relation to BirseShares. For these purposes, "arrangement" includes any agreement to sell or anydelivery obligation or right to require another person to purchase or takedelivery and borrowing or lending of Birse Shares. An "arrangement" alsoincludes any indemnity or option arrangement, any agreement or understanding,formal or informal, of whatever nature relating to Birse Shares which may be aninducement to deal or refrain from dealing in such securities. "Interest"includes any long economic exposure, whether conditional or absolute, to changesin the price of securities and a person is treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. 18. General The Birse Shares that are subject to the Offer will be acquired by BalfourBeatty fully paid and free from all liens, charges, equitable interests, thirdparty rights and interests and encumbrances and together with all rights now andhereafter attaching thereto, including the right to receive all dividends andother distributions (if any) declared, made or paid after the date of theannouncement of the Offer. The formal Offer Document and the Form(s) of Acceptance setting out the fullterms and conditions of the Offer will be posted to Birse Shareholders. Indeciding whether or not to accept the Offer in respect of their Birse Shares,Birse Shareholders should rely on the information contained in, and proceduresdescribed in, the Offer Document and Form(s) of Acceptance. The conditions to the Offer are set out in Appendix I to this announcement.Appendix III to this announcement contains definitions of certain expressionsused in this announcement. ENQUIRIES:Balfour Beatty Tel: +44 (0) 20 7216 6800Ian Tyler (Chief Executive)Anthony Rabin (Finance Director)Tim Sharp (Head of Corporate Communications) Citigroup Tel: +44 (0) 20 7986 4000(Financial Adviser to Balfour Beatty)Jan SkarbekJames Ireland Hoare Govett Tel: +44 (0) 20 7678 8000(Corporate Broker to Balfour Beatty)Bob PringleNeil Collingridge Gainsborough Tel: +44 (0) 20 7190 1700(PR Adviser to Balfour Beatty)Duncan MurrayAndy Cornelius Birse Tel: +44 (0) 1302 768 078Martin Budden (Group Managing Director)Gerry Roche (Group Finance Director) Rothschild Tel: +44 (0)113 200 1900(Financial Adviser to Birse)David ForbesDavid Wilton JP Morgan Cazenove Tel: +44 (0) 20 7588 2828(Corporate Broker to Birse)Steve BaldwinJonathan Walker Financial Dynamics Tel: +44 (0) 20 7831 3113(PR Adviser to Birse)Sally Lewis Citigroup, which is authorised and regulated by the Financial ServicesAuthority, is acting exclusively for Balfour Beatty and no one else inconnection with the Offer and this announcement and will not be responsible toanyone other than Balfour Beatty for providing the protections afforded toclients of Citigroup or for providing advice in connection with the Offer orthis announcement or any matter referred to herein. Rothschild, which is authorised and regulated by the Financial ServicesAuthority, is acting exclusively for Birse and no one else in connection withthe Offer and this announcement and will not be responsible to anyone other thanBirse for providing the protections afforded to clients of Rothschild or forproviding advice in connection with the Offer or this announcement or any matterreferred to herein. This announcement is for informational purposes only and does not constitute anoffer to sell or invitation to purchase any securities or the solicitation ofany vote for approval in any jurisdiction, nor shall there be any sale, issue ortransfer of the securities referred to in this announcement in any jurisdictionin contravention of applicable law. The Offer will be made solely by the OfferDocument and the Forms of Acceptance accompanying the Offer Document, which willcontain the full terms and conditions of the Offer, including details of how theOffer may be accepted. This announcement has been prepared for the purpose of complying with Englishlaw and the City Code and the information disclosed may not be the same as thatwhich would have been disclosed if this announcement had been prepared inaccordance with the laws of jurisdictions outside the United Kingdom. Therelease, publication or distribution of this announcement in certainjurisdictions may be restricted by law. Persons who are not resident in theUnited Kingdom or who are subject to other jurisdictions should informthemselves of, and observe, any applicable requirements. The Offer will not be made, directly or indirectly, in, into or from aRestricted Jurisdiction where to do so would violate the laws in thatjurisdiction, and the Offer is not capable of acceptance from or within aRestricted Jurisdiction. Accordingly, copies of this announcement and alldocuments relating to the Offer are not being, and must not be, directly orindirectly, mailed or otherwise forwarded, distributed or sent in, into or froma Restricted Jurisdiction where to do so would violate the laws in thatjurisdiction, and persons receiving this announcement and all documents relatingto the Offer (including custodians, nominees and trustees) must not mail orotherwise distribute or send them in, into or from such jurisdictions as doingso may invalidate any purported acceptance of the Offer. The availability of theOffer to Birse Shareholders who are not resident in the United Kingdom may beaffected by the laws of the relevant jurisdictions in which they are resident.Persons who are not resident in the United Kingdom should inform themselves of,and observe, any applicable requirements. The Loan Notes to be issued in connection with the Offer have not been, nor willthey be listed on any stock exchange and have not been, nor will they be,registered under the Securities Act or under any relevant laws of any state orother jurisdiction of the United States, nor have clearances been, nor will theybe, obtained from the securities commission or similar authority of anyprovince, territory or jurisdiction of Canada and no prospectus has been, orwill be, filed, or registration made, under any securities law of any provinceor territory of Canada, nor has a prospectus in relation to the Loan Notes been,nor will one be, lodged with, or registered by, the Australian Securities andInvestments Commission, nor have any steps been taken, nor will any steps betaken, to enable the Loan Notes to be offered in compliance with applicablesecurities laws of Japan. Accordingly, unless an exemption under relevantsecurities laws is available, the Loan Notes may not be offered, sold, resold,delivered or transferred, directly or indirectly, in or into a Loan NoteRestricted Jurisdiction in which an offer of the Loan Notes would constitute aviolation of the relevant laws of, or require registration thereof in, suchjurisdiction or to, or for the account or benefit of, a person located in a LoanNote Restricted Jurisdiction. In accordance with normal UK market practice, Balfour Beatty or its nominees orbrokers (acting as agents) may from time to time make certain purchases of, orarrangements to purchase, Birse Shares outside the United States, other thanpursuant to the Offer, before or during the period in which the Offer remainsopen for acceptance. These purchases may occur either in the open market atprevailing prices or in private transactions at negotiated prices. Anyinformation about such purchases will be disclosed as required in the UK. This announcement contains statements about Balfour Beatty and Birse that are ormay be forward looking statements. All statements other than statements ofhistorical facts included in this announcement may be forward lookingstatements. Without limitation, any statements preceded or followed by or thatinclude the words "targets", "plans" "believes", "expects", "aims"," intends", "will", "may", "anticipates", "estimates", "projects" or, words or terms ofsimilar substance or the negative thereof, are forward looking statements.Forward looking statements include statements relating to the following: (i)future capital expenditures, expenses, revenues, earnings, synergies, economicperformance, indebtedness, financial condition, dividend policy, losses andfuture prospects; (ii) business and management strategies and the expansion andgrowth of Balfour Beatty's or Birse's operations and potential synergiesresulting from the Offer; and (iii) the effects of government regulation onBalfour Beatty's or Birse's business. Such forward looking statements involve risks and uncertain ties that couldsignificantly affect expected results and are based on certain key assumptions.Many factors could cause actual results to differ materially from thoseprojected or implied in any forward looking statements. Due to suchuncertainties and risks, readers are cautioned not to place undue reliance onsuch forward looking statements, which speak only as of the date hereof. BalfourBeatty and Birse disclaim any obligation to update any forward looking or otherstatements contained herein, except as required by applicable law. Dealing Disclosure Requirements Please note that certain aspects of the rules on disclosure of the Code havechanged since 20 May 2006. The following represents a current summary of theposition. Under the provisions of Rule 8.3 of the Code, if any person is, or becomes, "interested" (directly or indirectly) in 1 per cent. or more of any class of "relevant securities" of Birse, all "dealings" in any "relevant securities" ofBirse (including by means of an option in respect of, or a derivativereferenced to, any such "relevant securities") must be publicly disclosed by nolater than 3.30 pm (London time) on the London business day following the dateof the relevant transaction. This requirement will continue until the date onwhich the Offer becomes, or is declared, unconditional as to acceptances, lapsesor is otherwise withdrawn or on which the "offer period" otherwise ends. If twoor more persons act together pursuant to an agreement or understanding, whetherformal or informal, to acquire an "interest" in "relevant securities" of Birse,they will be deemed to be a single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the Code, all "dealings" in "relevantsecurities" of Birse by Balfour Beatty or Birse, or by any of their respective "associates", must be disclosed by no later than 12.00 noon (London time) on theLondon business day following the date of the relevant transaction. A disclosure table, giving details of the companies in whose "relevantsecurities" "dealings" should be disclosed, and the number of such securities inissue, can be found on the Panel's website at www.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of, or derivative referenced to, securities. Terms in quotation marks are defined in the Code, which can also be found on thePanel's website. If you are in any doubt as to whether or not you are requiredto disclose a "dealing" under Rule 8, please contact an independent financialadviser authorised under the Financial Services and Markets Act 2000, consultthe Panel's website at www.thetakeoverpanel.org.uk or contact the Panel ontelephone number +44 (0) 20 7638 0129; fax +44 (0) 20 7236 7013. APPENDIX I Conditions to the Offer The Offer, which will be made by Balfour Beatty, will comply with the City Codeand will be governed by English law and subject to the jurisdiction of theEnglish courts. In addition, the Offer will be subject to the terms andconditions to be set out in the Offer Document. The Offer will be subject to thefollowing conditions: 1 valid acceptances of the Offer being received (and not,where permitted, withdrawn) by no later than 1.00 p.m. on the first closing dateas set out in the Offer Document (or such later time(s) and/or date(s) asBalfour Beatty may, subject to the rules of the Code, decide) in respect of notless than 90 per cent. (or such lesser percentage as Balfour Beatty may decide)of the Birse Shares to which the Offer relates, provided that this conditionwill not be satisfied unless Balfour Beatty and/or any member of the BalfourBeatty Group shall have acquired or agreed to acquire (whether pursuant to theOffer or otherwise) the Birse Shares carrying in aggregate more than 50 percent. of the voting rights normally exercisable at a general meeting of Birse.For the purposes of this condition: 1.1 the Birse Shares which have been unconditionally allotted butnot issued shall be deemed to carry the voting rights which they will carry uponissue; 1.2 the expression "Birse Shares to which the Offer relates" shallbe construed in accordance with Schedule 2 of the Interim ImplementationRegulations; and 1.3 valid acceptances shall be deemed to have been received inrespect of the Birse Shares which are treated for the purposes of paragraph 2(15) of Schedule 2 of the Interim Implementation Regulations as having beenacquired or contracted to be acquired by Balfour Beatty by virtue of acceptancesof the Offer; provided that unless Balfour Beatty otherwise determines, this condition 1 shallbe capable of being satisfied only at a time when all of the other conditions 2to 8 inclusive have either been satisfied, fulfilled or, to the extentpermitted, waived; 2 2.1 the UK Office of Fair Trading ("OFT") indicating in termsreasonably satisfactory to Balfour Beatty that it has decided not to refer theproposed acquisition of Birse by Balfour Beatty (the "Transaction") or any partof it to the Competition Commission ("CC"); or 2.2 the period for considering any merger notice given to the OFTunder section 96 of the Enterprise Act 2002 ("EA") by Balfour Beatty havingexpired without any such reference being made, provided that section 100(1)(a),(d) and (f) of the EA do not apply in relation to such merger notice; 2.3 if Clause 2.1 or 2.2 is satisfied, the period specified in Rule26 of the Competition Appeal Tribunal Rules 2003 for making any applicationunder section 120(1) of the EA for the review of a decision in relation to theTransaction having expired without any such application being made. 3 no central bank, government or governmental, quasi-governmental, supranational, statutory, regulatory or investigative body, tradeagency, court, professional association, or any other such body or person in anyjurisdiction (each a "Third Party") having given notice of a decision to take,institute or threaten any action, proceeding, suit, investigation, enquiry orreference, or having required any action to be taken, or otherwise having doneanything, or having enacted, made or proposed any statute, regulation, decisionor order which would: 3.1 make the Offer, its implementation or the acquisition orproposed acquisition of any of the Birse Shares by Balfour Beatty void,unenforceable or illegal, or restrict, prohibit or delay to a material extent orotherwise materially interfere with the implementation of, or impose materialadditional conditions or obligations with respect to, or otherwise materiallychallenge or require material amendment of, the Offer or the acquisition of anyof the Birse Shares by Balfour Beatty; 3.2 result in a material delay in the ability of Balfour Beatty, orrender it unable, to acquire some or all of the Birse Shares or require adivestiture by Balfour Beatty or any member of the Wider Balfour Beatty Group ofany shares in Birse; 3.3 require, prevent or delay the divestiture, or alter the termsenvisaged for any proposed divestiture, by Balfour Beatty or any member of theWider Balfour Beatty Group or by any member of the Wider Birse Group, in anysuch case of all or any part of their respective businesses, assets orproperties, or impose any limitation on their ability to conduct theirrespective businesses (or any of them) or to own their respective assets orproperties or any part of them, to an extent in any such case which is materialin the context of the Offer; 3.4 impose any material limitation on, or result in a materialdelay in, the ability of Balfour Beatty or any member of the Wider BalfourBeatty Group to acquire or to hold or to exercise effectively, directly orindirectly, all rights of ownership of shares, loans or other securities (or theequivalent) in, or to exercise management control over, Birse or the ability ofany member of the Wider Birse Group or Balfour Beatty to hold or exerciseeffectively any rights of ownership of shares, loans or other securities in, orto exercise management control over any member of the Wider Birse Group; 3.5 save pursuant to the Offer or Part XIIIA of the Act, requireany member of the Wider Balfour Beatty Group or of the Wider Birse Group toacquire or offer to acquire any shares or other securities (or the equivalent)in, or any asset owned by, any member of the Wider Birse Group owned by anythird party; 3.6 result in any member of the Wider Birse Group ceasing to beable to carry on business under any name which it presently does so, theconsequences of which would be material in the context of the Wider Birse Grouptaken as a whole; 3.7 otherwise adversely affect the business, assets, liabilities,or profits of any member of the Wider Balfour Beatty Group or of the Wider BirseGroup, to an extent in any such case which is material in the context of theWider Balfour Beatty Group or the Wider Birse Group, as the case may be, takenas a whole, and all applicable waiting and other time periods during which anysuch Third Party could take, institute or threaten any such action, proceeding,suit, investigation, enquiry or reference or otherwise so intervene havingexpired, lapsed or been terminated; 4 all necessary material notifications and filings having beenmade in connection with the Offer and all statutory and regulatory obligationsin connection with the Offer in any jurisdiction having been complied with andall material authorisations, orders, recognitions, grants, consents, clearances,confirmations, certificates, licences, permissions and approvals("Authorisations") deemed reasonably necessary or appropriate by Balfour Beattyin any jurisdiction for, or in respect of, the Offer and the acquisition or theproposed acquisition of the Birse Shares by Balfour Beatty or any member of theBalfour Beatty Group having been obtained in terms reasonably satisfactory toBalfour Beatty from all appropriate Third Parties, or from any persons or bodieswith whom any member of the Wider Balfour Beatty Group or the Wider Birse Grouphas entered into contractual arrangements, all or any applicable waiting andother time periods having expired, lapsed or been terminated (as appropriate)and all such Authorisations (together with all material Authorisations deemedreasonably necessary or appropriate to carry on the business of any member ofthe Wider Birse Group) remaining in full force and effect at the time at whichthe Offer becomes otherwise unconditional and there being no notice of anyintention to revoke, suspend, restrict, amend or not to renew any suchAuthorisations; 5 save as disclosed in writing to any member of the BalfourBeatty Group or its advisers by or on behalf of Birse prior to the date of thisannouncement or save as publicly announced by Birse prior to the date of thisannouncement, there being no provision of any arrangement, agreement, lease,licence, permit or other instrument to which any member of the Wider Birse Groupis a party or by or to which any such member or any of its assets is or may bebound or be subject, which as a consequence of the Offer or the acquisition orthe proposed acquisition by Balfour Beatty or any member of the Wider BalfourBeatty Group of any shares or other securities (or the equivalent) in Birse orbecause of a change in the control or management of any member of the WiderBirse Group or otherwise, would result, in any case to an extent which ismaterial in the context of the Wider Birse Group taken as a whole, in: 5.1 any monies borrowed by, or any other indebtedness, actual orcontingent, of, any member of the Wider Birse Group being or becoming repayable,or being capable of being declared repayable immediately or prior to their orits stated maturity, or the ability of any such member to borrow monies or incurany indebtedness being withdrawn or inhibited; 5.2 the creation or enforcement of any mortgage, charge or othersecurity interest, over the whole or any part of the business, property orassets of any member of the Wider Birse Group or any such mortgage, charge orother security interest (whenever arising or having arisen) becomingenforceable; 5.3 any such arrangement, agreement, lease, licence, permit orother instrument being terminated or adversely modified or affected or anyonerous obligation or liability arising or any adverse action being takenthereunder; 5.4 any assets or interests of any member of the Wider Birse Groupbeing or falling to be disposed of or charged or any right arising under whichany such asset or interest could be required to be disposed of or charged; 5.5 any such member of the Wider Birse Group ceasing to be able tocarry on business under any name under which it presently does so; 5.6 the value or financial or trading position or profits of Birseor any member of the Wider Birse Group being prejudiced or adversely affected;or 5.7 the creation of any liability (actual or contingent) by anymember of the Wider Birse Group; 6 save as disclosed in the Annual Report or in the InterimResults, as publicly announced through a Regulatory Information Service prior tothe date of this announcement or as disclosed in writing to any member of theBalfour Beatty Group or its advisers by or on behalf of Birse prior to the dateof this announcement, no member of the Wider Birse Group having since 30 April2005: 6.1 issued or agreed to issue or authorised or proposed orannounced its intention to authorise or propose the issue of additional sharesof any class, or securities convertible into, or exchangeable for, or rights,warrants or options to subscribe for or acquire, any such shares or convertiblesecurities (save as between Birse and wholly-owned subsidiaries of Birse); 6.2 recommended, declared, paid or made or proposed to recommend,declare, pay or make any bonus issue, dividend or other distribution whetherpayable in cash or otherwise other than dividends (or other distributionswhether payable in cash or otherwise) lawfully paid or made by any wholly-ownedsubsidiary of Birse to Birse or any of its wholly-owned subsidiaries; 6.3 other than pursuant to the Offer (and save for transactionsbetween Birse and its wholly-owned subsidiaries or other than in the ordinarycourse of business) implemented, effected, authorised, proposed or announced itsintention to implement, effect, authorise or propose any merger, demerger,reconstruction, amalgamation, scheme, commitment or acquisition or disposal ofassets or shares (or the equivalent thereof) in any undertaking or undertakings,in any such case, that is material in the context of the Birse Group taken as awhole or any change in its share or loan capital; 6.4 (save for transactions between Birse and its wholly-ownedsubsidiaries or other than in the ordinary course of business) disposed of, ortransferred, mortgaged or created any security interest over any asset or anyright, title or interest in any asset, in any such case, that is material in thecontext of the Birse Group taken as a whole or authorised, proposed or announcedany intention to do so; 6.5 (save for transactions between Birse and its wholly-ownedsubsidiaries) issued, authorised or proposed or announced an intention toauthorise or propose, the issue of any debentures or (save for transactionsbetween Birse and its wholly-owned subsidiaries or transactions under existingcredit arrangements or in the ordinary course of business) incurred anyindebtedness or contingent liability which is material in the context of theBirse Group taken as a whole; 6.6 entered into or varied or authorised, proposed or announced itsintention to enter into or vary any contract, arrangement, agreement,transaction or commitment (whether in respect of capital expenditure orotherwise) which is of a long term, unusual or onerous nature or magnitude orwhich involves or is reasonably likely to involve an obligation of such a natureor magnitude which is, in any such case, or which is or is likely to berestrictive on the business of any member of the Wider Birse Group, which is, inany such case, material in the context of the Wider Birse Group taken as awhole; 6.7 entered into or varied to a material extent or authorised,proposed or announced its intention to enter into or vary to a material extentthe terms of, or make any offer (which remains open for acceptance) to enterinto or vary to a material extent the terms of, any service agreement with anydirector or, save for salary increases, bonuses or variations of terms in theordinary course, senior executive of Birse; 6.8 purchased, redeemed or repaid or announced a proposal topurchase, redeem or repay any of its own shares or other securities (or theequivalent) or reduced or made any other change to or proposed the reduction orother change to any part of its share capital, save for any shares allottedbetween Birse and wholly-owned subsidiaries of Birse; 6.9 waived, compromised or settled any claim which is material inthe context of the Birse Group taken as a whole otherwise than in the ordinarycourse of business; 6.10 terminated or varied the terms of any agreement or arrangementbetween any member of the Birse Group and any other person in a manner whichwould or might reasonably be expected to have a material adverse effect on thefinancial position or prospects of the Birse Group taken as a whole; 6.11 (save as disclosed on publicly available registers) made anyalteration to its memorandum or articles of association; 6.12 made or agreed or consented to any significant change to the termsof the trust deeds constituting the pension schemes established for itsdirectors and/or employees and/or their dependants or to the benefits whichaccrue, or to the pensions which are payable, thereunder, or to the basis onwhich qualification for or accrual or entitlement to such benefits or pensionsare calculated or determined or to the basis upon which the liabilities(including pensions) of such pension schemes are funded or made, or agreed orconsented to any change to the trustees involving the appointment of a trustcorporation; 6.13 been unable, or admitted in writing that it is unable, to pay itsdebts or having stopped or suspended (or threatened to stop or suspend) paymentof its debts generally or ceased or threatened to cease carrying on all or asubstantial part of any business which is material in the context of the BirseGroup taken as a whole; 6.14 (other than in respect of a member which is dormant and wassolvent at the relevant time) taken or proposed any corporate action or had anyaction or proceedings or other steps instituted against it for its winding-up(voluntary or otherwise), dissolution or reorganisation or for the appointmentof a receiver, administrator, administrative receiver, trustee or similarofficer of all or any material part of its assets or revenues or any analogousproceedings in any jurisdiction or appointed any analogous person in anyjurisdiction; or 6.15 entered into any agreement, arrangement or commitment or passedany resolution or made any proposal or announcement with respect to, or toeffect, any of the transactions, matters or events referred to in this condition6; 7 since 30 April 2005, save as disclosed in the Annual Reportor in the Interim Results, or save as disclosed in writing to any member of theBalfour Beatty Group or its advisers by or on behalf of Birse or except aspublicly announced by Birse (by the delivery of an announcement to a RegulatoryInformation Service), in each case prior to the date of this announcement, therehaving been: 7.1 no adverse change in the business, assets, financial or tradingposition or profits or prospects of any member of the Wider Birse Group which ismaterial in the context of the Wider Birse Group taken as a whole; 7.2 no litigation, arbitration proceedings, prosecution or otherlegal proceedings having been announced or instituted by or against or remainingoutstanding against or in respect of any member of the Wider Birse Group and noenquiry or investigation by or complaint or reference to any Third Party againstor in respect of any member of the Wider Birse Group having been threatened,announced or instituted or remaining outstanding, against or in respect of anymember of the Wider Birse Group and which in any such case might reasonably beexpected to have a material adverse effect on the Wider Birse Group taken as awhole; and 7.3 no contingent or other liability having arisen or becomeapparent to any member of the Wider Balfour Beatty Group which might reasonablybe expected to adversely affect any member of the Wider Birse Group and which inany such case is material in the context of the Wider Birse Group taken as awhole; 8 save as publicly announced by the delivery of anannouncement to a Regulatory Information Service prior to the date of thisannouncement or as otherwise disclosed in the Annual Report or in the InterimResults or in writing to any member of the Balfour Beatty Group or its advisersby or on behalf of Birse prior to the date of this announcement, Balfour Beattynot having discovered: 8.1 that the financial, business or other information concerningthe Wider Birse Group publicly announced or disclosed at any time by or onbehalf of any member of the Wider Birse Group is misleading, contains amisrepresentation of fact or omits to state a fact necessary to make theinformation contained therein not misleading and which is, in any case, materialin the context of the Wider Birse Group; 8.2 that any member of the Wider Birse Group is, otherwise than inthe ordinary course of business, subject to any liability, contingent orotherwise, which is material in the context of the Wider Birse Group taken as awhole; 8.3 that any past or present member of the Wider Birse Group hasfailed to comply in any material respect with any applicable legislation orregulations of any jurisdiction or any notice or requirement of any Third Partywith regard to the storage, disposal, discharge, spillage, release, leak oremission of any waste or hazardous or harmful substance or any substance likelyto impair the environment or harm human or animal health or otherwise relatingto environmental matters or that there has been any such storage, presence,disposal, discharge, spillage, release, leak or emission (whether or not thesame constituted non-compliance by any person with any such legislation orregulation, and whenever the same may have taken place), any of whichnon-compliance would be likely to give rise to any material liability (whetheractual or contingent) or cost on the part of any member of the Wider Birse Groupand which is material. in any such case, in the context of the Wider Birse Grouptaken as a whole; or 8.4 there is, or is reasonably likely to be, any materialobligation or liability (whether actual or contingent) to make good, repair,reinstate or clean up any property now or previously owned, occupied, operatedor made use of or controlled by any past or present member of the Wider BirseGroup under any environmental legislation, regulation, notice, circular or orderof any Third Party in any jurisdiction, in each case to an extent which ismaterial in the context of the Wider Birse Group taken as a whole. For the purposes of this Appendix: "Wider Balfour Beatty Group" means Balfour Beatty and its subsidiaryundertakings, associated undertakings and any other undertakings in whichBalfour Beatty and such undertakings (aggregating their interests) have asubstantial interest; and "Wider Birse Group" means Birse and its subsidiary undertakings, associatedundertakings and any other undertakings in which Birse and such undertakings(aggregating their interests) have a substantial interest. For these purposes, "subsidiary", "subsidiary undertaking", "undertaking" and "associated undertaking" have the respective meanings given thereto by the Act,but for this purpose ignoring paragraph 20(1)(b) of Schedule 4A of the Act, and"substantial interest" means a direct or indirect interest in 20 per cent. ormore of the equity capital of an undertaking. Balfour Beatty reserves the right to waive, in whole or in part, all or any ofthe above conditions 2 to 8 (inclusive). If Balfour Beatty is required by the Panel to make an offer for the Birse Sharesunder the provisions of Rule 9 of the Code, Balfour Beatty may make suchalterations to any of the above conditions, including condition 1 above, andterms of the Offer as are necessary to comply with the provisions of that Rule. The Offer will lapse unless all the above conditions have been fulfilled or,where permitted, waived or, where appropriate, have been determined by BalfourBeatty to be or remain satisfied, by midnight on the 21st day after the later ofthe first closing date of the Offer Document and the date on which condition 1is fulfilled (or in each case such later date as Balfour Beatty may determine,in accordance with the City Code). Balfour Beatty shall be under no obligationto waive (if capable of waiver), to determine to be or remain satisfied or totreat as fulfilled any of conditions 2 to 8 (inclusive) by a date earlier thanthe latest date for the fulfilment of that condition notwithstanding that theother conditions of the Offer may at such earlier date have been waived orfulfilled and that there are at such earlier date no circumstances indicatingthat any of such conditions may not be capable of fulfilment. The Offer will lapse (unless otherwise agreed with the Panel) if, before thelater of the first closing date of the Offer and the date when the Offer becomesor is declared unconditional as to acceptances the OFT has referred the Offer tothe Competition Commission. If the Offer lapses, the Offer will cease to be capable of further acceptanceand accepting Birse Shareholders and Balfour Beatty shall cease to be bound byForms of Acceptance submitted at or before the time when the Offer so lapses. APPENDIX II DETAILS OF IRREVOCABLE UNDERTAKINGS The following holders of Birse Shares have given irrevocable undertakings toaccept the Offer: Name Number of Birse Shares % of issued share capital The Barbinder Trust MB Account 4,000,000 2.1 Grange Nominees Limited GI 4,000,000 2.1 Account Peter Birse 11,115,685 5.8Peter and Helen Birse (The Peter 12,755,135 6.6 Birse Charitable Trust, B70 Account and B83 Account) HSBC Bank plc 19,439,838 10.1 APPENDIX III Definitions of certain terms used in this announcement The following definitions apply throughout this announcement unless the contextrequires otherwise. "Acceptance Condition" the condition as set out in paragraph 1 of Appendix I to this announcement "Act" the Companies Act 1985, as amended "Annual Report" the annual report and accounts of Birse for the year ended 30 April 2005 "Australia" the commonwealth of Australia, its territories and possessions and all areas subject to its jurisdiction and all political sub-divisions thereof "Authorisations" has the meaning given to it in paragraph 4 of Appendix I of this announcement "Balfour Beatty" Balfour Beatty plc "Balfour Beatty Directors" the directors of Balfour Beatty "Balfour Beatty Group" Balfour Beatty plc, its subsidiaries and subsidiary undertakings "Birse" or the "Company" Birse Group plc "Birse Directors" the directors of Birse "Birse Group" Birse Group plc, its subsidiaries and subsidiary undertakings "Birse Shareholders" or "Shareholders" the holders of Birse Shares, as the case may be "Birse Shares" the existing unconditionally allotted or issued and fully paid ordinary shares of 10 pence each in the capital of Birse and any further such ordinary shares which are unconditionally allotted or issued while the Offer remains open for acceptance or before such earlier date as Balfour Beatty (subject to the City Code) may determine, not being, unless the Panel so permits, earlier than the date on which the Offer is declared unconditional as to acceptances or, if later, the first closing date of the Offer "Canada" Canada, its provinces and territories and all areas subject to its jurisdiction and all political sub-divisions thereof "Citigroup" Citigroup Global Markets Limited "City Code" or "Code" the City Code on Takeovers and Mergers "Form of Acceptance" the form of acceptance and authority to be issued in connection with the Offer and which will accompany the Offer Document "FSA" the Financial Services Authority "Higher Competing Offer" a general offer by a third party for the Birse Shares, the value of the consideration per Birse Share available under which at the time it is made exceeds the value of the consideration per Birse Share available under the Offer at that time by at least 2.75p on the assumption, in each case, that any rights to elect to receive different forms of consideration (including rights to accept underwritten cash alternatives or other collateral offers) are exercised in such manner as maximises that value but ignoring the possible impact of any "mix and match" or similar arrangement under which Shareholders can elect, subject to the elections of other Shareholders, to vary the proportion in which they receive different forms of consideration "IFRS" International Financial Reporting Standards "Interim Implementation Regulations" the Takeovers Directive (Interim Implementation) Regulations 2006 "Interim Results" the unaudited interim results of Birse for the six months ended 31 October 2005 "Japan" Japan, its cities and prefectures, territories and possessions "LIBOR" the British Bankers Association Interest Settlement Rate (rounded down, if necessary, to four decimal places) which is quoted as of 11.00 a.m. on the first Business Day of the relevant interest period on the appropriate page of Reuters screen (or such other page or service as may replace it for the purpose of displaying London inter-bank sterling offered rates of leading reference banks) as being the interest rates offered in the London inter-bank market of six month sterling deposits "Listing Rules" the rules and regulations made by the Financial Services Authority in its capacity as the UK Listing Authority under the Financial Services and Markets Act 2000, and contained in the UK Listing Authority's publication of the same name "Loan Notes" the floating rate guaranteed unsecured Loan Notes due 2009 of Balfour Beatty to be issued pursuant to the Loan Note Alternative "Loan Note Alternative" the Loan Note alternative by which Birse Shareholders (other than Birse Shareholders in any Loan Note Restricted Jurisdiction) who validly accept the Offer may elect to receive Loan Notes instead of all or part of the cash consideration to which they would otherwise have been entitled under the Offer "Loan Note Restricted Jurisdiction" any of the United States, Australia, Canada or Japan or any jurisdiction where extension or acceptance of the Loan Note Alternative would violate the law of that jurisdiction "London Stock Exchange" London Stock Exchange plc "Offer" the recommended cash offer being made by Balfour Beatty to acquire the whole of the issued share capital of Birse on the terms and subject to the conditions to be set out in the Offer Document and the Form of Acceptance, including, where the context requires, any subsequent revision, variation, extension or renewal of such offer and includes any election available thereunder "Offer Document" the document to be despatched on behalf of Balfour Beatty containing the terms and conditions of the Offer and, where appropriate, any other document(s) containing terms and conditions of the Offer constituting the full terms and conditions of the Offer "Official List" the Official List of the UK Listing Authority "Panel" the Panel on Takeovers and Mergers "Regulatory Information Service" any of the services set out in Appendix 3 to the Listing Rules "Restricted Jurisdiction" any of the United States, Australia or Canada or any jurisdiction where extension or acceptance of the Offer would violate the law of that jurisdiction "Rothschild" N M Rothschild & Sons Limited "Securities Act" the United States Securities Act of 1933 (as amended) and the rules and regulations promulgated thereunder "Third Party" has the meaning given to it in paragraph 3 of Appendix I of this announcement "UKLA" the UK Listing Authority, being the Financial Services Authority Limited acting in its capacity as the competent authority for the purposes of Part IV of the Financial Services and Markets Act 2000 "United Kingdom" or "UK" the United Kingdom of Great Britain and Northern Ireland "United States" or "US" the United States of America, its territories and possessions, any State of the United States of America and the District of Columbia For the purposes of this announcement, "subsidiary", "subsidiary undertaking", "undertaking" and "associated undertaking" have the respective meanings giventhereto by the Act, but for this purpose ignoring paragraph 20(1)(b) of Schedule4A of the Act. All the times referred to in this announcement are London times unless otherwisestated. References to the singular include the plural and vice versa. £ and pence means Pounds and Pence Sterling, the lawful currency of the UnitedKingdom. This information is provided by RNS The company news service from the London Stock Exchange

---

Related Shares:

Balfour Beatty