Offer for London Merchant Sec

14th Nov 2006 07:00

Derwent Valley Holdings PLC14 November 2006 Not for release, publication or distribution in or into the United States, Australia, Canada or Japan 14 November 2006 Recommended share for share merger of Derwent Valley Holdings and London Merchant Securities to create Derwent London plc The Boards of Derwent Valley Holdings plc and London Merchant Securities plc arepleased to announce that they have agreed the terms of a recommended merger ofthe two companies to create Derwent London plc, a dynamic Central Londonspecialist property company with a combined property portfolio of £2.25 billion. Strategic rationale • The merger will create a leading force in the Central London property market focusing on the development, refurbishment and active management of properties. The Derwent London Group will have: - Property assets with a last reported value of £2.25 billion comprising over 5.6 million square feet with a focus on offices - A major presence in London's West End (61 per cent. by value) and City borders (23 per cent. by value) markets, with a particular focus on the middle rental market, which is expected to continue to grow - Combined project pipeline of 5.2 million square feet, of which around 1 million square feet is expected to be completed by 2008 - Improved financing options for a larger scale business along with depth of management resource, providing the Derwent London Group with more scope to carry out larger scale investment and development opportunities in Central London • The merger is expected to deliver enhanced shareholder value by combining Derwent's proven acquisition and creative development expertise with the growth prospects and potential of the LMS portfolio • With the conversion to a REIT becoming possible in 2007, the Derwent London Group would be well positioned to convert and become the leading dedicated Central London REIT Merger terms • Recommended share for share merger: - All share basis: 10 New Derwent Shares for every 67 LMS Shares, representing a value of 298 pence per LMS Share - Partial Cash Alternative basis: 280 pence per LMS Share up to a maximum of 20 per cent. of LMS's fully diluted share capital • A Mix and Match Facility will allow LMS Shareholders tovary the proportions in which they receive New Derwent Shares and cash under thePartial Cash Alternative. • LMS Shareholders electing for the Partial Cash Alternativewill have the option of taking Loan Notes instead of all or part of their cashentitlements, including cash entitlements under the Mix and Match Facility. • The Transaction: - represents a premium of around 24 per cent. over LMS'sClosing Price of 240.25 pence as at 29 September 2006, the last Business Daybefore LMS announced that it was in merger discussions - represents a premium of around 5 per cent. over LMS'sClosing Price of 283 pence as at 13 November 2006, the last Business Day beforethis announcement - values LMS's issued and to be issued share capital at£1.0 billion • Assuming the maximum number of New Derwent Shares areissued to LMS Shareholders under the Transaction, Derwent Shareholders would ownapproximately 52 per cent. and LMS Shareholders would own approximately 48 percent. of the Derwent London Group upon completion of the Transaction. • Derwent has agreed that LMS Shareholders will also beentitled to receive and retain any interim dividend not exceeding 1.2 pence perLMS Share which the LMS Board may announce on or around 22 November 2006. The Board • Upon completion of the Transaction Robbie Rayne, LMS'sChief Executive, will become Chairman of the Board of Derwent London and JohnIvey, currently Chairman of Derwent, will become Deputy Chairman. John Burns,Managing Director of Derwent, will become Chief Executive and lead the DerwentLondon Group. Nick Friedlos, LMS's Finance Director, will join the Board as anexecutive. Simon Silver, currently Derwent's Head of Development, will becomeHead of Development of the Derwent London Group. Undertakings • The LMS Directors, the Rayne family and certain relatedtrustees and executors, representing approximately 37 per cent. of the LMSShares currently in issue, have undertaken to vote in favour of the Scheme. • Robbie Rayne and the other LMS Directors have undertakennot to elect for the Partial Cash Alternative. Commenting on the Transaction, Robbie Rayne, Chairman designate of DerwentLondon, said: "This is an extraordinary opportunity for shareholders in both companies. LMShas strong and unique land holdings with substantial potential in areas verycomplementary to Derwent's existing portfolio and pipeline. Led by John Burnsand Simon Silver, Derwent has a very experienced and entrepreneurial managementteam, with an innovative development approach that fits with our culture andwill optimise value from the enlarged portfolio. The combined business, with itsenlarged scale and focus on Central London, has excellent growth prospects and Iam confident our shareholders will maximise value through this merger." Commenting on the Transaction, John Burns, Chief Executive Officer designate ofDerwent London, said: • "This merger will be transformational. By combining ourcompanies, we will create a new force in the Central London office market andparticularly the "mid-market" niche in which we specialise. With our provendevelopment and management skills, our highly complementary properties andlandholdings and our strengthened financial firepower, we are uniquely placedboth to capitalise on the substantial opportunities within the existingportfolios and to undertake larger acquisitions and development projects thanbefore. We warmly welcome the outstanding prospects this merger will bring andare confident that, together, we will provide considerable opportunities tocreate, extract and enhance value for all our shareholders." UBS Investment Bank is acting as financial adviser to Derwent. Rothschild isacting as lead financial adviser to LMS. JPMorgan Cazenove is acting as jointfinancial adviser and broker to LMS. This summary should be read in conjunction with the full text of the followingannouncement and the Appendices. Investor communication: There will be a presentation to investors and analysts at 8.15 a.m. on Tuesday14 November 2006 at UBS, 1 Finsbury Avenue, London EC2M 2PP. Presentation slideswill also be available on the websites of both companies atwww.derwentvalley.co.uk and www.lms-plc.com. Enquiries: Derwent Valley Holdings plc 020 7659 3000 John BurnsSimon SilverChristopher Odom UBS Investment Bank (financial adviser and broker to Derwent) 020 7567 8000Liam BeereTim Guest Financial Dynamics (public relations adviser to Derwent) 020 7831 3113Stephanie HighettDido Laurimore London Merchant Securities plc 020 7935 3555Robbie RayneNick FriedlosMartin Pexton Rothschild (lead financial adviser to LMS) 020 7280 5000Alex MidgenDuncan Wilmer JPMorgan Cazenove (joint financial adviser and broker to LMS) 020 7588 2828Michael Wentworth-StanleyRichard CottonBronson Albery Brunswick (public relations adviser to LMS) 020 7404 5959Simon SporborgNina Coad The conditions to and certain further terms of the Transaction are set out inAppendix 1. The bases and sources of certain financial information are set out in Appendix2. Certain definitions and terms are set out in Appendix 3. Not for release, publication or distribution in or into the United States, Australia, Canada or Japan 14 November 2006 Recommended share for share merger of Derwent Valley Holdings and London Merchant Securities to create Derwent London plc 1. Introduction The Boards of Derwent Valley Holdings plc and London Merchant Securities plc arepleased to announce that they have agreed the terms of a recommended merger ofthe two companies to create Derwent London plc. It is intended that theTransaction will be effected by way of a scheme of arrangement under section 425of the Companies Act, although Derwent reserves the right, in its solediscretion, to implement the Transaction by making a takeover offer for theentire issued and to be issued share capital of LMS. 2. Summary of the Transaction Under the Transaction, which will be subject to the conditions and further termsset out below and in Appendix 1 and the full terms and conditions which will beset out in the Scheme Document, LMS Shareholders will receive: • All share basis: 10 New Derwent Shares for every 67 LMS Shares, representing a value of 298 pence per LMS Share • Partial Cash Alternative basis: 280 pence per LMS Share up to a maximum of 20 per cent. of LMS's fully diluted share capital and so in proportion for any number of LMS Shares held. A Mix and Match Facility will also be available under which LMS Shareholdersmay, subject to availability, elect to vary the proportions in which theyreceive New Derwent Shares and cash under the Partial Cash Alternative. If thePartial Cash Alternative were accepted in full, it would require a cash paymentby Derwent of approximately £188 million. This cash will be provided by Derwentfrom a new bank facility. Further details of the Partial Cash Alternative andthe Mix and Match Facility are contained in section 8 below. LMS Shareholders electing for the Partial Cash Alternative will have the optionof taking Loan Notes instead of all or part of their cash entitlements,including cash entitlements under the Mix and Match Facility. Further details ofthe Loan Note Option are contained in section 9 below. The Transaction: • represents a premium of around 24 per cent. over LMS'sClosing Price of 240.25 pence as at 29 September 2006, the last Business Daybefore LMS announced that it was in merger discussions • represents a premium of around 5 per cent. over LMS'sClosing Price of 283 pence as at 13 November 2006, the last Business Day beforethis announcement • values LMS's issued and to be issued share capital at £1.0billion and implies an enterprise value for LMS of approximately £1.5 billion Assuming the maximum number of New Derwent Shares are issued under theTransaction, Derwent Shareholders would own approximately 52 per cent. and LMSShareholders would own approximately 48 per cent. of the Derwent London Groupupon completion of the Transaction. Derwent has agreed that LMS Shareholders will also be entitled to receive andretain any interim dividend not exceeding 1.2 pence per LMS Share which the LMSBoard may announce on or around 22 November 2006 when LMS's interim results forthe period ended 30 September 2006 are announced. 3. Recommendation The LMS Directors, who have been so advised by Rothschild and JPMorgan Cazenove,consider the terms of the Transaction to be fair and reasonable. In providingtheir financial advice to the LMS Directors, Rothschild and JPMorgan Cazenovehave taken into account the commercial assessments of the LMS Directors. The LMS Directors intend unanimously to recommend that LMS Shareholders vote infavour of the Scheme, as they have undertaken to do in respect of their ownbeneficial holdings of 6,980,946 LMS Shares (representing, in aggregate,approximately 2.1 per cent. of the LMS Shares currently in issue). 4. Background to and reasons for the Transaction Derwent and LMS are two leading Central London property companies that haveassembled investment portfolios with considerable potential and undertaken highquality refurbishments and developments. The locations and characteristics ofboth are highly complementary. The Derwent London Group would have propertyassets with a last reported value of over £2.25 billion and a total area of over5.6 million square feet with a focus on offices. The portfolio is located mainlyin two major London hubs: the West End (61 per cent.) and the City borders (23per cent.). Both Derwent and LMS have focused on the Central London market and the locationsof their respective assets complement each other within it. Derwent provides astrategically balanced portfolio of investments and projects throughout the WestEnd including Soho, Belgravia, Victoria, Covent Garden and Paddington, while LMSprovides a greater exposure to Fitzrovia, Baker Street, Clerkenwell andIslington. West End offices have been, and are expected to remain, one of the mostattractive asset classes in London with strong rental and capital growthprospects. The Derwent London Group will provide investors with a greaterpresence in this part of London, where available office space is scarce andrents are increasing. The two companies have also been very active in theimproving City borders office market which typically sees strong appetiteamongst tenants for good quality space at mid-market rents, a traditional areaof strength for both Derwent and LMS. Given the limited availability of quality office space, the Derwent London Groupwill also continue to deliver and expand its substantial pipeline of developmentand refurbishment schemes, with the intention of providing a strong additionalsource of future capital and income growth to shareholders. The current jointpipeline of potential development and refurbishment proposals totals 5.2 millionsquare feet. A key element of the Derwent London Group's strategy will be the ongoingapplication of Derwent's design-led philosophy, whereby it will continue totransform and revitalise properties to provide highly desirable and modernoffice environments, as well as creating innovative design solutions to delivernew developments and refurbishment schemes. Furthermore, as a result of thismerger, the Derwent London Group will have a greater ability, both in terms offinancial strength and management resource, to seek out and undertake largerscale acquisitions and development projects. With the conversion to REIT status being possible from January 2007, the DerwentLondon Group is well positioned to convert and become the leading dedicatedCentral London REIT. 5. Information relating to Derwent Derwent is a commercial property investor focused on Central London with aportfolio valued at £1.14 billion as at 30 June 2006. The company invests inproperties in the West End and other London locations. The portfolio consists ofincome-generating properties and buildings offering opportunities forrefurbishment and redevelopment. Derwent has a strategy of delivering a distinctive brand of offices and is wellknown in the industry for its imaginative and successful schemes. The portfoliocurrently comprises about 2.6 million square feet of predominantly office floorspace, comprising roughly 500 tenancies. 74 per cent. of the portfolio by valueis situated in the West End, with the remaining 26 per cent. on the Cityborders. Derwent actively recycles its assets and therefore looks to sell propertieswhere rental aspirations have been reached. The average rents within theportfolio are low at around £25 per square foot, allowing further rental growththrough both refurbishment projects and active asset management. Derwentcontinuously manages its portfolio, with rolling programmes of refurbishmentenabling certain assets to remain occupied while improvements are carried out instages. Considerable management time is invested in investigating and obtainingplanning permissions to redevelop and refurbish buildings within its portfolioupon lease expiries to create a new generation of modern office buildings. Current projects are expected to create over 550,000 square feet ofpredominantly office space, which will be completed by 2008. Furthermore, anumber of significant opportunities are within the medium and longer-termdevelopment pipeline. Derwent generated profit before tax of £122.6 million for the six months to 30June 2006 (£150.4 million for the year to 31 December 2005). Net property incomewas £29.9 million (year to 31 December 2005: £46.6 million), while therevaluation surplus for the period was £99.2 million (year to 31 December 2005:£124.1 million). Net assets were £694.6 million (year to 31 December 2005:£606.2 million) and adjusted net asset value per share was £15.40 (year to 31December 2005: £13.35). Net debt was £327 million (year to 31 December 2005:£303.9 million), with a net asset value gearing ratio of 47.1 per cent. (year to31 December 2005: 50.1 per cent.). Its management has delivered a totalshareholder return of 25 per cent. per annum over the last 5 years. 6. Information relating to LMS LMS is a property investment and development company committed to attainingsuperior investor returns, achieving 18.5 per cent. like-for-like growth in thefinancial year to 31 March 2006. The property portfolio at that date was valuedat £1.11 billion. LMS continues to work its portfolio releasing smaller assets to allow greaterfocus on schemes where it can create greater value through asset management. Thecompany is active in the market with £110 million worth of transactionscompleted in the year to 31 March 2006. Over 300,000 square feet of office andmixed-use development is under construction or has been completed in the year to31 March 2006. The company's approach involves upgrading and expanding its core holdingsthrough in-depth market knowledge, active asset management and a long-termperspective. This means pursuing an active development programme, both in coreareas and in other locations where there is scope for renewal andreconfiguration. LMS has a well-established portfolio totalling 3.0 million square feet with aCentral London focus and a number of strategic holdings in Fitzrovia,Clerkenwell and the City. The current portfolio comprises 55 per cent. offices,predominantly located in Central London, and 32 per cent. retail and leisureassets across the UK. This, along with other investments including a number oflandholdings, comprises the remaining 13 per cent. of the portfolio by value. LMS generated profit before tax, exceptional items and debt breakage costs of£183.0 million for the year to 31 March 2006 (£90.7 million for the year to 31March 2005). Net rental income was £52.0 million (£56.4 million). Total assetswere £1,169.1 million. Net assets as at 31 March 2006 have been adjusted to takeinto consideration the impact of the demerger of LMS's venture capital division,Leo Capital plc in June 2006. The results for 2005 have not been adjusted andare gross of minority interests. Net assets at 31 March 2006 were £528.4 million(£529.5 million) and the adjusted net asset value per share was £1.91 (£1.72).Net debt was £403.6 million (£376.5 million), with a net asset value gearingratio of 73.9 per cent. (71.1 per cent.). Following the demerger of Leo Capital plc, LMS is focussed on active propertyasset management and development opportunities. It now has the largestdevelopment programme and pipeline in its history and the development programmecurrently has a gross development value of some £240 million. LMS made a pre-close statement on 2 October 2006 in relation to current trading.A further update on current trading will be made on or around 22 November 2006when LMS's interim results for the period ended 30 September 2006 are to beannounced. 7. Management, employees and head office of the Derwent London Group Upon completion of the Transaction, the Derwent London Group will be operatedand managed on a unified basis. Derwent and LMS recognise the strongcontributions made by their respective management and employees to thedevelopment of both businesses and share the view that both teams will becritical to the success of the Derwent London Group going forward. The Derwent Board has given the LMS Board assurances that, following theTransaction becoming Effective, the existing employment rights, includingpension rights, of all management and employees of LMS will be fullysafeguarded. Upon completion of the Transaction, the Board of the Derwent London Group willbe as follows: Name Role Current Company Robbie Rayne Chairman LMS (currently Chief Executive)John Ivey Deputy Chairman Derwent (currently Chairman)John Burns Chief Executive Officer Derwent (currently Managing Director)Simon Silver Head of Development DerwentChristopher Odom Finance Director DerwentNick Friedlos Executive Director LMSNigel George Executive Director DerwentPaul Williams Executive Director Derwent There will also be non-executive directors on the Board, three being drawn fromDerwent and two from LMS. Derwent plans to work with LMS management to further develop the combinedbusiness and work proactively to ensure a smooth and rapid integration of thetwo companies. The head office of the Derwent London Group will be at 25 Savile Row, London W1S2ER. 8. Partial Cash Alternative and Mix and Match Facility LMS Shareholders electing for the Partial Cash Alternative may elect, subject toavailability, to vary the proportions of New Derwent Shares and cash theyreceive in respect of their holding of LMS Shares. However, the maximum numberof New Derwent Shares that may be issued and the maximum amount of cash that maybe paid under the Transaction will not be varied as a result of elections underthe Mix and Match Facility. Accordingly, Derwent's ability to satisfy Mix andMatch elections made by LMS Shareholders will depend on other LMS Shareholdersmaking offsetting elections. Satisfaction of elections under the Mix and Match Facility will be effected onthe basis of 280 pence in cash for each LMS Share, up to a maximum of 20 percent. of LMS's fully diluted share capital. LMS Shareholders who make elections under the Mix and Match Facility will notknow the exact number of New Derwent Shares, or the amount of cash, which theywill receive until settlement of the consideration under the Transaction,although an announcement will be made of the approximate extent to whichelections under the Mix and Match Facility will be satisfied. To the extent thatelections can be satisfied, LMS Shareholders will receive cash instead of NewDerwent Shares. To the extent that elections cannot be satisfied in full, theywill be scaled down on a pro rata basis and LMS Shareholders will receive NewDerwent Shares. LMS Shareholders will only be able to elect for cash under theMix and Match Facility if they also elect for the Partial Cash Alternative. Tothe extent that LMS Shareholders take all New Derwent Shares under theTransaction, there will be more cash available on a per share basis under thePartial Cash Alternative for the remaining LMS Shareholders (although themaximum cash payable under the Partial Cash Alternative will remain in aggregate£188 million). The Mix and Match Facility is conditional upon the Transaction becomingEffective. The Mix and Match Facility will not affect the entitlement of those LMSShareholders who do not make an election under the Mix and Match Facility.Details and further terms of the Mix and Match Facility will be set out in theScheme Document. 9. Loan Note Option LMS Shareholders electing for the Partial Cash Alternative will have the optionof taking Loan Notes to be issued by Derwent instead of all or part of the cashto which they are entitled, including cash entitlements under the Mix and MatchFacility. The Loan Note Option will be made available on the basis of £1 nominalvalue of Loan Notes for every £1 of cash to which an LMS Shareholder wouldotherwise be entitled. The Loan Notes will be governed by English law and will be issued credited asfully paid, in amounts and multiples of £1 nominal value. Derwent intends thatthe Loan Notes will have the benefit of a bank guarantee. All fractionalentitlements to the Loan Notes will be disregarded and not issued. Noapplication will be made for the Loan Notes to be issued or dealt in on anystock exchange and they will not be transferable. The Loan Notes will bear interest of 0.75 per cent. below sterling LIBOR for aperiod equal, or as nearly as possible equal, to the relevant interest period.Interest will be payable by half-yearly instalments in arrear (less any tax) on30 June and 31 December in each year. The Loan Notes will be redeemable in wholeor in part for cash at the option of the noteholders on 31 December 2008 andsubsequently semi-annually on 30 June and 31 December in each year. In certaincircumstances Derwent will have the right to redeem all of the Loan Notes. Ifnot previously redeemed, the final redemption date will be the fifth anniversaryof the date on which the Loan Notes are issued. No Loan Notes will be issued unless, on or before the Effective Date, validelections have been received in respect of at least £2 million in nominal valueof Loan Notes. If insufficient elections are received, LMS Shareholders electingfor the Loan Note Option will instead receive cash in accordance with the termsof the Transaction. If at any time after 31 December 2008 the outstandingnominal amount of Loan Notes equals or is less than £200,000 then Derwent willbe entitled to redeem all of the then outstanding Loan Notes. The Loan Note Option is conditional upon the Transaction becoming Effective. TheLoan Notes are not being offered in the United States, Canada, Australia, Japanor any other jurisdiction where the sale, issue or transfer of the Loan Noteswould be a contravention of applicable law. 10. LMS Share Schemes The Transaction will extend to all LMS Shares issued upon the exercise ofoptions under the LMS Share Schemes before the Transaction becomes Effective.Appropriate proposals will be made in due course to participants in the LMSShare Schemes. 11. Financing The consideration payable to LMS Shareholders under the Partial Cash Alternativewill be provided by Derwent from a new bank facility. UBS Investment Bank is satisfied that sufficient resources are available toDerwent to satisfy in full the Partial Cash Alternative under the terms of theTransaction. Further information on the financing of the Transaction will be set out in theScheme Document. 12. Scheme of arrangement It is intended that the Transaction will be effected by means of a scheme ofarrangement between LMS and its shareholders under section 425 of the CompaniesAct (although Derwent reserves the right to effect the Transaction by way of theOffer). The procedure involves an application by LMS to the Court to sanctionthe Scheme and confirm the cancellation of all the Scheme Shares, inconsideration for which LMS Shareholders will receive New Derwent Shares and,where they have elected for the Partial Cash Alternative, cash as describedabove (or, if they have exercised the Loan Note Option, Loan Notes). To become effective, the Scheme requires, amongst other things, the approval ofa majority in number representing not less than three fourths in value of therelevant LMS Shareholders present and voting in person or by proxy at the SchemeMeeting and the passing of the resolutions necessary to implement the Scheme atthe LMS Extraordinary General Meeting. The Scheme must also be sanctioned by theCourt and the associated Capital Reduction must be confirmed by the Court, ineach case at the relevant Court Hearings. The formal documentation setting out details of the Transaction, including theScheme Document setting out the procedures to be followed to approve the Scheme,together with the Prospectus relating to Derwent and the New Derwent Shares,will be posted to LMS Shareholders (other than to persons with addresses inRestricted Territories) as soon as is reasonably practicable. This is expectedto be around mid-December. The Scheme Document will include full details of the Scheme, together withnotices of the Scheme Meeting and the LMS Extraordinary General Meeting and theexpected timetable, and will specify the action to be taken by SchemeShareholders. 13. Derwent Shareholder approval The Transaction constitutes a Class 1 transaction (as defined in the ListingRules of the UK Listing Authority) for Derwent. Accordingly, Derwent will berequired to seek the approval of its shareholders for the Transaction at theDerwent Extraordinary General Meeting. Derwent will prepare and send to itsshareholders, as soon as is reasonably practicable, a circular summarising thebackground to and reasons for the Transaction (which will include a noticeconvening the Derwent Extraordinary General Meeting). The Transaction will beconditional on, amongst other things, the requisite resolutions being passed bythe Derwent Shareholders at the Derwent Extraordinary General Meeting. 14. Overseas Shareholders The availability of New Derwent Shares under the terms of the Transaction topersons not resident in the United Kingdom may be affected by the laws of therelevant jurisdiction. Such persons should inform themselves about and observeany applicable requirements. Further details in relation to OverseasShareholders will be contained in the Scheme Document. 15. Irrevocable undertakings Derwent has received irrevocable undertakings to vote in favour of the Scheme(or, if applicable, to accept the Offer) in respect of a total of 121,726,000LMS Shares, representing approximately 37 per cent. of LMS's existing issuedshare capital, further details of which are set out below. The LMS Directors (including Robbie Rayne) have irrevocably undertaken to votein favour of the Scheme (or, if applicable, to accept the Offer) and not toelect for the Partial Cash Alternative, in respect of their own beneficialholdings totalling 6,980,946 LMS Shares, representing in aggregate approximately2.1 per cent. of LMS's issued share capital. These undertakings remain bindingin the event of a competing offer being made for LMS and will cease to bebinding only if the Transaction does not become Effective or is withdrawn. Certain members of the Rayne family and other related individuals haveirrevocably undertaken to vote in favour of the Scheme (or, if applicable, toaccept the Offer) in respect of 36,883,583 LMS Shares, representing in aggregateapproximately 11.2 per cent. of LMS's issued share capital. These undertakingscease to be binding in the event of a competing offer being made for LMS at aprice which represents in the reasonable opinion of Rothschild an increase of atleast 10 per cent. over the price per LMS Share under the Transaction at thetime of announcement of the competing offer. For the purposes of determiningsuch prices, the Transaction is assumed to be on an all share basis and theprice per LMS Share under the Transaction is to be calculated by reference tothe average of the Closing Prices of Derwent Shares for the five trading daysprior to the announcement of the competing offer, and the price of the competingoffer, if it includes any non-cash consideration, shall be calculated byreference to the Closing Price of such consideration on the last trading dayprior to such announcement. These undertakings also cease to be binding if theTransaction does not become Effective or is withdrawn. The trustees of certain family trusts (including The Rayne Foundation and theRayne Trust) have irrevocably undertaken to vote in favour of the Scheme (or, ifapplicable, to accept the Offer) in respect of a total of 22,730,933 LMS Shares,representing in aggregate approximately 7 per cent. of LMS's issued sharecapital. These undertakings cease to be binding in the same circumstances asdescribed in the preceding paragraph. The trustees of certain other family trusts and the executors of the estate ofLord Rayne have irrevocably undertaken to vote in favour of the Scheme (or, ifapplicable, to accept the Offer) in respect of a total of 55,130,538 LMS Shares,representing in aggregate approximately 17 per cent. of LMS's issued sharecapital. These undertakings cease to be binding in the event of a competingoffer being made for LMS which represents, in the reasonable opinion of therelevant trustees or executors, an increase over the price per LMS Share underthe Transaction. These undertakings also cease to be binding if the Transactiondoes not become Effective or is withdrawn. 16. Mutual break fees LMS has entered into an arrangement with Derwent under which LMS has undertaken,amongst other things, to pay Derwent one per cent. of the total Transactionvalue (being £9.9 million) if, following this announcement: (i) the LMSDirectors do not recommend unanimously in the Scheme Document (or, asapplicable, the Offer Document) that LMS Shareholders vote in favour of thenecessary resolutions to implement the Scheme (or, as applicable, accept theOffer) or they withdraw or adversely modify their recommendation of theTransaction, or (ii) any Alternative Proposal becomes or is declaredunconditional in all respects or is otherwise completed. Derwent has agreed to pay LMS one per cent. of its market capitalisation (being£10.6 million) if the Derwent Directors do not recommend unanimously thatDerwent Shareholders vote in favour of the necessary resolutions to implementthe Transaction or if they withdraw or adversely modify such recommendation. 17. Disclosure of interests in LMS Derwent owns 1 LMS Share, and Mrs E.A Odom, Christopher Odom's wife, owns 1,503LMS Shares. Save for these holdings and for the arrangements with LMSShareholders in relation to irrevocable undertakings summarised in section 15above, as at 13 November 2006, the latest practicable date prior to thisannouncement, neither Derwent, nor, so far as Derwent is aware, any personacting in concert with Derwent for the purposes of the Transaction, owns,controls or holds any LMS Shares or any securities convertible or exchangeableinto or rights to subscribe for or purchase, or holds any options (includingtraded options) to purchase, any LMS Shares or has entered into any derivativereferenced to LMS Shares. It has not been possible, by the date of this announcement, to ascertain theinterests in LMS Shares (if any) of all Derwent's concert parties. Furtherenquiries will be completed prior to publication of the Scheme Document orannounced earlier if required by the Panel. 18. Delisting and re-registration It is intended that the London Stock Exchange and the United Kingdom ListingAuthority will be requested respectively to cancel trading in LMS Shares on theLondon Stock Exchange's market for listed securities and to remove the listingof the LMS Shares from the Official List, in each case on the Effective Date. Assoon as possible after the Effective Date, it is intended that LMS bere-registered as a private limited company. 19. General The Transaction will be subject to the conditions and further terms set outherein and in Appendix 1, and to the full terms and conditions which will be setout in the Scheme Document. The Transaction will be governed by English law andbe subject to the applicable requirements of the City Code, the Panel, theLondon Stock Exchange and the UK Listing Authority. Enquiries: Derwent Valley Holdings plc 020 7659 3000John BurnsSimon SilverChristopher Odom UBS Investment Bank (financial adviser and broker to Derwent) 020 7567 8000Liam BeereTim Guest Financial Dynamics (public relations adviser to Derwent) 020 7831 3113Stephanie HighettDido Laurimore London Merchant Securities plc 020 7935 3555Robbie RayneNick FriedlosMartin Pexton Rothschild (lead financial adviser to LMS) 020 7280 5000Alex MidgenDuncan Wilmer JPMorgan Cazenove (joint financial adviser and broker to LMS) 020 7588 2828Michael Wentworth-StanleyRichard CottonBronson Albery Brunswick (public relations adviser to LMS) 020 7404 5959Simon SporborgNina Coad The conditions to and certain further terms of the Transaction are set out inAppendix 1. The bases and sources of certain financial information are set out in Appendix2. Certain definitions and terms are set out in Appendix 3. UBS, which is authorised and regulated in the United Kingdom by the FinancialServices Authority, is acting exclusively for Derwent and no one else inconnection with the Transaction and will not be responsible to anyone other thanDerwent for providing the protections afforded to the clients of UBS nor forproviding advice in relation to the Transaction or any other matter referred toherein. Rothschild, which is authorised and regulated in the United Kingdom by theFinancial Services Authority, is acting exclusively for LMS in connection withthe Transaction and will not be responsible to anyone other than LMS forproviding the protections afforded to the clients of Rothschild nor forproviding advice in relation to the Transaction or any other matter referred toherein. JPMorgan Cazenove, which is authorised and regulated in the United Kingdom bythe Financial Services Authority, is acting exclusively for LMS in connectionwith the Transaction and will not be responsible to anyone other than LMS forproviding the protections afforded to the clients of JPMorgan Cazenove nor forproviding advice in relation to the Transaction or any other matter referred toherein. The release, publication or distribution of this announcement in jurisdictionsother than the United Kingdom may be restricted by law and therefore any personswho are subject to the laws of any jurisdiction other than the United Kingdomshould inform themselves about, and observe, any applicable requirements. Thisannouncement has been prepared for the purposes of complying with English lawand 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 of England. It is possible that this announcement could or may contain forward lookingstatements that are based on current expectations or beliefs, as well asassumptions about future events. Undue reliance should not be placed on any suchstatements because by their very nature, they are subject to known and unknownrisks and uncertainties and can be affected by other factors that could causeactual results, and Derwent's and/or the Derwent London Group's plans andobjectives , to differ materially from those expressed or implied in the forwardlooking statements. There are several factors which could cause actual results to differ materiallyfrom those expressed or implied in forward looking statements. Among the factorsthat could cause actual results to differ materially from those described in theforward looking statements are LMS's and Derwent's ability to successfullycombine the businesses of LMS and Derwent and to realise expected synergies fromthat combination, changes in the global, political, economic, business,competitive, market and regulatory forces, future exchange and interest rates,changes in tax rates and future business combinations or dispositions. Neither Derwent nor LMS undertakes any obligation (except as required by therules of the UK Listing Authority and the London Stock Exchange) to revise orupdate any forward looking statement contained in this announcement, regardlessof whether those statements are affected as a result of new information, futureevents or otherwise. This announcement does not constitute an offer to sell or invitation to purchaseany securities or the solicitation of any vote or approval in any jurisdiction.LMS Shareholders are advised to read carefully the formal documentation inrelation to the Transaction once it has been despatched. In particular, this announcement is not an offer of securities for sale in theUS and the New Derwent Shares have not been, and will not be, registered underthe US Securities Act of 1933 (the "Securities Act") or under the securities lawof any state, district or other jurisdiction of the US, Australia, Canada orJapan and no regulatory clearance in respect of the New Derwent Shares has been,or will be, applied for in any jurisdiction other than the UK. It is expectedthat the New Derwent Shares will be issued in reliance upon the exemption fromthe registration requirements of the Securities Act provided by Section 3(a)(10)thereof. Dealing Disclosure Requirements Under the provisions of Rule 8.3 of the City Code, if any person is, or becomes,"interested" (directly or indirectly) in 1 per cent. or more of any class of "relevant securities" of Derwent or LMS, all "dealings" in any "relevantsecurities" of that company (including by means of an option in respect of, or aderivative referenced to, any such "relevant securities") must be publiclydisclosed by no later than 3.30 p.m. on the London business day following thedate of the relevant transaction. This requirement will continue until theEffective Date or until the date on which the Scheme lapses or is otherwisewithdrawn or on which the "offer period" otherwise ends (or, if Derwent electsto effect the Transaction by way of a takeover offer, until the date on whichthe offer 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 Derwentor LMS, 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 City Code, all "dealings" in "relevantsecurities" of Derwent or LMS by Derwent or LMS, or by any of their respective "associates", must be disclosed by no later than 12.00 noon on the Londonbusiness 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 City Code, which can also be foundon the Panel's website. If you are in any doubt as to whether or not you arerequired to disclose a "dealing" under Rule 8, you should consult the Panel. Appendix 1 CONDITIONS TO AND CERTAIN FURTHER TERMS OF THE TRANSACTION The Transaction will be conditional upon the Scheme becoming unconditional andEffective by a date falling 120 days after the date on which the Scheme Documentis posted or such later date as Derwent and LMS may agree and (if required) theCourt may allow. PART A Conditions of the Transaction 1 The Scheme will be subject to the following conditions: a) its approval by a majority in number representing not less than three-fourths in value of the holders of LMS Shares who are on the register of members of LMS at the Scheme Voting Record Time, present and voting, whether in person or by proxy, at the Scheme Meeting (or any adjournment thereof); b) the resolutions required to implement the Scheme being passed at the LMS Extraordinary General Meeting (or any adjournment thereof); and c) the sanction (with or without modification (but subject to such modification being acceptable to Derwent and LMS)) of the Scheme and the confirmation of the Capital Reduction by the Court, office copies of the Court Orders and of the Minute being delivered for registration to the Registrar of Companies and registration of the Second Court Order confirming the Capital Reduction with the Registrar of Companies. 2 The Transaction will be conditional upon the passing at the Derwent Extraordinary General Meeting (or any adjournment thereof) of such resolution or resolutions as are necessary to approve, implement and effect the Transaction and the acquisition of LMS Shares pursuant to the Transaction or otherwise (as such resolutions may be set out in the Derwent Shareholder Circular, including a resolution or resolutions to increase the share capital of Derwent and authorise the creation and allotment of the New Derwent Shares). 3 LMS and Derwent have agreed that, subject to the provisions of paragraph 5 below and the requirements of the Panel in accordance with the City Code, the Scheme will also be conditional upon, and accordingly the necessary actions to make the Transaction Effective will only be taken on, the satisfaction or, where relevant, waiver of the following Conditions: a) where the Transaction qualifies for investigation by the Office of Fair Trading under the merger provisions of the Enterprise Act 2002, the Office of Fair Trading in the United Kingdom indicating, in terms reasonably satisfactory to Derwent and LMS, that the proposed Transaction or any matter arising therefrom or related thereto will not be referred to the Competition Commission and the deadline for appealing such a decision to the Competition Appeal Tribunal having expired or lapsed (as appropriate); b) the admission to the Official List of the New Derwent Shares to be issued in connection with the Transaction becoming effective in accordance with the Listing Rules and the admission of such shares to trading becoming effective in accordance with the Admission and Disclosure Standards of the London Stock Exchange or, if Derwent and LMS so determine and subject to the consent of the Panel, the UKLA agreeing to admit such shares to the Official List and the London Stock Exchange agreeing to admit such shares to trading subject only to (i) the allotment of such shares and/or (ii) the Transaction becoming Effective. c) except as (i) publicly announced in accordance with the Listing Rules by Derwent or LMS prior to 14 November 2006, (ii) disclosed in the annual report and accounts of LMS for the financial year ended 31 March 2006, or (iii) disclosed in the annual report and accounts of Derwent for the financial year ended 31 December 2005 or the interim accounts of Derwent for the six months ended 30 June 2006, there being no provision of any agreement, arrangement, licence, permit or other instrument to which any member of the wider Derwent Group or the wider LMS Group is a party or by or to which any such member or any of its assets may be bound, entitled or subject, which in consequence of the Transaction or the proposed acquisition of any shares or other securities in LMS by the Derwent Group or because of a change in the control or management of Derwent or LMS or otherwise, would or might reasonably be expected to result (in each case to an extent which is material in the context of the wider LMS Group as a whole or the wider Derwent Group as a whole) in: (i) any moneys borrowed by or any other indebtedness (actual or contingent) of, or grant available to any such member, being or becoming repayable or capable of being declared repayable immediately or earlier than their or its stated maturity date or repayment date or the ability of any such member to borrow moneys or incur any indebtedness being withdrawn or inhibited or being capable of becoming or being withdrawn or inhibited; (ii) any such agreement, arrangement, licence, permit or instrument or the rights, liabilities, obligations or interests of any such member thereunder being terminated or modified or affected or any obligation or liability arising or any action being taken thereunder; (iii) any assets or interests of any such member being or falling to be disposed of or charged or any right arising under which any such asset or interest could be required to be disposed of or charged otherwise than in the ordinary course of business; (iv) the creation or enforcement of any mortgage, charge or other security interest over the whole or any part of the business, property or assets of any such member; (v) the rights, liabilities, obligations or interests of any such member in, or the business of any such member with, any person, firm or body (or any arrangement or arrangements relating to any such interest or business) being terminated, adversely modified or affected; (vi) the value of any such member or its financial or trading position being prejudiced or adversely affected; (vii) any such member ceasing to be able to carry on business under any name under which it presently does so; or (viii) the creation of any liability, actual or contingent, by any such member, and no event having occurred which, under any provision of any agreement, arrangement, licence, permit or other instrument to which any member of the wider Derwent Group or the wider LMS Group is a party or by or to which any such member or any of its assets may be bound, entitled or subject, would result in or would reasonably be expected to result in any of the events or circumstances as are referred to in sub-paragraphs (i) to (viii) of this paragraph 3(c) (in each case to an extent which is material in the context of the wider Derwent Group as a whole or the wider LMS Group as a whole); d) no government or governmental, quasi-governmental, supranational, statutory, regulatory, environmental or investigative body, court, trade agency, association, institution or any other body or person whatsoever in any jurisdiction (each a " Third Party") having decided to take, institute, implement or threaten any action, proceeding, suit, investigation, enquiry or reference, or enacted or made any statute, regulation, decision or order, or having taken any other steps which would or would reasonably be expected to (in each case to an extent which is material in the context of the wider Derwent Group as a whole or the wider LMS Group as a whole): (i) require, prevent or delay the divestiture, or alter the terms envisaged for any proposed divestiture by any member of the wider Derwent Group or any member of the wider LMS Group of all or any portion of their respective businesses, assets or property or impose any material limitation on the ability of any of them to conduct their respective businesses (or any of them) or to own any of their respective assets or properties or any material part thereof; (ii) require, prevent or delay the divestiture by any member of the wider Derwent Group of any shares or other securities in LMS; (iii) impose any limitation on, or result in a delay in, the ability of any member of the wider Derwent Group or the wider LMS Group directly or indirectly to acquire or to hold or to exercise effectively any rights of ownership in respect of shares or loans or securities convertible into shares or any other securities (or the equivalent) in any member of the wider LMS Group or the wider Derwent Group or to exercise management control over any such member; (iv) otherwise adversely affect the business, assets or profits of any member of the wider Derwent Group or of any member of the wider LMS Group; (v) make the Transaction or its implementation or the acquisition or proposed acquisition by Derwent or any member of the wider Derwent Group of any shares or other securities in, or control of LMS void, illegal, and/or unenforceable under the laws of any jurisdiction, or otherwise, directly or indirectly, restrain, restrict, prohibit, delay or otherwise materially interfere with the same, or impose additional conditions or obligations with respect thereto, or otherwise challenge or materially interfere therewith; (vi) require any member of the wider Derwent Group or the wider LMS Group to offer to acquire any shares or other securities (or the equivalent) or interest in any member of the wider LMS Group or the wider Derwent Group owned by any third party; or (vii) result in any member of the wider Derwent Group or the wider LMS Group ceasing to be able to carry on business under any name under which it presently does so, and all applicable waiting and other time periods during which any such Third Party could institute, implement or threaten any action, proceeding, suit, investigation, enquiry or reference or any other step under the laws of any jurisdiction in respect of the Transaction or the acquisition or proposed acquisition of any LMS Shares having expired, lapsed or been terminated; e) all necessary filings or applications having been made in connection with the Transaction and all statutory or regulatory obligations in any jurisdiction having been complied with in connection with the Transaction or the acquisition by any member of the wider Derwent Group of any shares or other securities in, or control of, LMS and all authorisations, orders, recognitions, grants, consents, licences, confirmations, clearances, permissions and approvals (collectively "Consents") reasonably deemed necessary for or in respect of, the Transaction or the proposed acquisition of any shares or other securities in, or control of, LMS by any member of the wider Derwent Group having been obtained in terms and in a form reasonably satisfactory to Derwent and LMS from all appropriate Third Parties or persons with whom any member of the wider Derwent Group or the wider LMS Group has entered into contractual arrangements, and all such Consents together with all material Consents reasonably necessary to carry on the business of any member of the wider Derwent Group or the wider LMS Group remaining in full force and effect and all filings necessary for such purpose having been made and there being no notice or intimation of any intention to revoke or not to renew any of the same at the time at which the Transaction otherwise becomes Effective and all necessary statutory or regulatory obligations in any jurisdiction having been complied with in all material respects; f) except as (i) publicly announced in accordance with the Listing Rules by Derwent or LMS prior to 14 November 2006, (ii) disclosed in the annual report and accounts of LMS for the financial year ended 31 March 2006, (iii) disclosed in the annual report and accounts of Derwent for the financial year ended 31 December 2005 or the interim accounts of Derwent for the six months ended 30 June 2006, or (iv) fairly disclosed by or on behalf of Derwent or LMS to the other prior to 14 November 2006, no member of the wider LMS Group having, since 31 March 2006, and no member of the wider Derwent Group having, since 31 December 2005: (i) save as between Derwent and wholly-owned subsidiaries of Derwent, or as between LMS and wholly-owned subsidiaries of LMS, or for Derwent Shares issued pursuant to the exercise of options granted under the Derwent Share Schemes, or for LMS Shares issued pursuant to the exercise of options granted under the LMS Share Schemes, issued, authorised or proposed the issue of additional shares of any class; (ii) save as between Derwent and wholly-owned subsidiaries of Derwent, or as between LMS and wholly-owned subsidiaries of LMS, or for the grant of options under the Derwent Share Schemes or the LMS Share Schemes, issued or agreed to issue, authorised or proposed the issue of securities convertible or exchangeable into shares of any class or rights, warrants or options to subscribe for, or acquire, any such shares or convertible securities; (iii) other than to another member of the Derwent Group or the LMS Group and save as provided for in respect of LMS in this announcement, recommended, declared, paid or made or proposed to recommend, declare, pay or make any bonus, dividend or other distribution whether payable in cash or otherwise; (iv) save pursuant to the Transaction and save for intra-Derwent Group or intra-LMS Group transactions, merged or demerged with any body corporate or acquired or disposed of or transferred, mortgaged or charged or created any security interest over any assets or any right, title or interest in any asset (including shares and trade investments) or authorised or proposed or announced any intention to propose any merger, demerger, acquisition or disposal, transfer, mortgage, charge or security interest which, in any case, is not in the ordinary course of business and is material in the context of the wider Derwent Group taken as a whole or the wider LMS Group taken as a whole; (v) save for intra-Derwent Group or intra-LMS Group transactions, made or authorised or proposed or announced an intention to propose any change in its loan capital; (vi) issued, authorised or proposed the issue of any debentures or (save for intra-Derwent Group or intra-LMS Group transactions), save in the ordinary course of business, incurred or increased any indebtedness or become subject to any guarantee or contingent liability, which in any case is material in the context of the wider Derwent Group taken as a whole or the wider LMS Group taken as a whole; (vii) purchased, redeemed or repaid or announced any proposal to purchase, redeem or repay any of its own shares or other securities or reduced or, save in respect to the matters mentioned in sub-paragraph (i) above, made any other change to any part of its share capital; (viii) implemented, or authorised, proposed or announced its intention to implement, any reconstruction, amalgamation, scheme, commitment or other transaction or arrangement which, in any case, is not in the ordinary course of business and is material in the context of the wider Derwent Group taken as a whole or the wider LMS Group taken as a whole, or entered into or changed the terms of any contract with any director or senior executive; (ix) entered into or varied or authorised, proposed or announced its intention to enter into or vary any contract, transaction or commitment (whether in respect of capital expenditure or otherwise) which is of a long term, onerous or unusual nature or magnitude or which is or would be reasonably likely to be materially restrictive on the businesses of the wider LMS Group or the wider Derwent Group taken as a whole or which involves or could involve an obligation of such a nature or magnitude or which is other than in the ordinary course of business, and in each such case is or would be reasonably likely to be material in the context of the wider LMS Group taken as a whole or the wider Derwent Group taken as a whole; (x) (other than in respect of a member which is dormant and was solvent at the relevant time) taken any corporate action or had any legal proceedings started or threatened against it for its winding-up, dissolution or reorganisation or for the appointment of a receiver, administrative receiver, administrator, trustee or similar officer of all or any of its assets or revenues or any analogous proceedings in any jurisdiction or had any such person appointed; (xi) entered into any contract, transaction or arrangement which would be restrictive on the business of any member of the wider LMS Group or the wider Derwent Group other than to a nature and extent which is normal in the context of the business concerned, to an extent which is or would be reasonably likely to be material in the context of the wider LMS Group taken as a whole or wider Derwent Group taken as a whole; (xii) waived or compromised any claim otherwise than in the ordinary course of business and in any case which is or would be reasonably likely to be material in the context of the wider Derwent Group taken as a whole or the wider LMS Group taken as a whole; or (xiii) entered into any contract, commitment, arrangement or agreement otherwise than in the ordinary course of business or passed any resolution or made any offer (which remains open for acceptance) with respect to or announced any intention to, or to propose to, effect any of the transactions, matters or events referred to in this condition; g) since 31 December 2005 (in the case of the wider Derwent Group) or 31 March 2006 (in the case of the wider LMS Group) and save as disclosed in the accounts for the year then ended in each case (and, in the case of Derwent, in its interim accounts for the six months ended 30 June 2006) and save as publicly announced in accordance with the Listing Rules by Derwent or LMS prior to 14 November 2006 or as fairly disclosed by or on behalf of Derwent or LMS to the other prior to 14 November 2006: (i) no material adverse change or deterioration having occurred in the business, assets, financial or trading position or profits of the wider Derwent Group or the wider LMS Group taken as a whole; (ii) no litigation, arbitration proceedings, prosecution or other legal proceedings to which any member of the wider Derwent Group or the wider LMS Group is or may become a party (whether as a plaintiff, defendant or otherwise) and no investigation by any Third Party against or in respect of any member of the wider Derwent Group or the wider LMS Group having been instituted, announced or threatened by or against or remaining outstanding in respect of any member of the wider Derwent Group or the wider LMS Group which in any such case would have or would reasonably be expected to have a material adverse effect on the wider Derwent Group or the wider LMS Group as a whole; (iii) no contingent or other liability having arisen which would have or would reasonably be expected to have a material adverse effect on the wider Derwent Group or the wider LMS Group as a whole; (iv) no steps having been taken which are likely to result in the withdrawal, cancellation, termination or modification of any licence held by any member of the wider Derwent Group or the wider LMS Group which is necessary for the proper carrying on of its business and the absence of which in any case would have or would reasonably be expected to have a material adverse effect on the wider Derwent Group or the wider LMS Group as a whole; h) save as (i) publicly announced in accordance with the Listing Rules by Derwent or LMS prior to 14 November 2006, (ii) disclosed in the annual report and accounts of LMS for the financial year ended 31 March 2006, or (iii) disclosed in the annual report and accounts of Derwent for the financial year ended 31 December 2005 or the interim accounts of Derwent for the six months ended 30 June 2006, Derwent not having discovered in relation to the wider LMS Group and LMS not having discovered in relation to the wider Derwent Group: i) that any financial, business or other information concerning the wider Derwent Group or the wider LMS Group as contained in the information publicly disclosed or disclosed to Derwent at any time by or on behalf of any member of the wider LMS Group, or to LMS at any time by or on behalf of any member of the wider Derwent Group, is materially misleading, contains a material misrepresentation of fact or omits to state a fact necessary to make that information not materially misleading; or ii) that any member of the wider Derwent Group or the wider LMS Group is subject to any liability (contingent or otherwise which is material in the context of the Derwent Group or the LMS Group as a whole) which is not disclosed in the annual report and accounts of LMS for the year ended 31 March 2006 or of Derwent for the year ended 31 December 2005 or in the interim accounts of Derwent for the six months ended 30 June 2006; and i) Derwent not having discovered in relation to the wider LMS Group and LMS not having discovered in relation to the wider Derwent Group that: i) any past or present member of the wider Derwent Group or the wider LMS Group has failed to comply with any and/or all applicable legislation or regulation, of any jurisdiction with regard to the disposal, spillage, release, discharge, leak or emission of any waste or hazardous substance or any substance likely to impair the environment or harm human health or animal health or otherwise relating to environmental matters, or that there has otherwise been any such disposal, spillage, release, discharge, leak or emission (whether or not the same constituted a non-compliance by any person with any such legislation or regulations, and wherever the same may have taken place) any of which disposal, spillage, release, discharge, leak or emission would be likely to give rise to any liability (actual or contingent) on the part of any member of the wider Derwent Group or the wider LMS Group and which is material in the context of the wider Derwent Group or the wider LMS Group as a whole; or ii) there is, or is likely to be, for that or any other reason whatsoever, any liability (actual or contingent) of any past or present member of the wider Derwent Group or the wider LMS Group to make good, repair, reinstate or clean up any property or any controlled waters now or previously owned, occupied, operated or made use of or controlled by any such past or present member of the wider Derwent Group or the wider LMS Group, under any environmental legislation, regulation, notice, circular or order of any government, governmental, quasi-governmental, state or local government, supranational, statutory or other regulatory body, agency, court, association or any other person or body in any jurisdiction and which is material in the context of the wider Derwent Group or the wider LMS Group as a whole. 4 For the purposes of these conditions the "wider LMS Group" means LMS and its subsidiary undertakings, associated undertakings and any other undertaking in which LMS and/or such undertakings (aggregating their interests) have a significant interest and the "wider Derwent Group" means Derwent and its subsidiary undertakings, associated undertakings and any other undertaking in which Derwent and/or such undertakings (aggregating their interests) have a significant interest and for these purposes "subsidiary undertaking", " associated undertaking" and "undertaking" have the meanings given by the Companies Act, other than paragraph 20(1)(b) of Schedule 4A to that Act which shall be excluded for this purpose, and "significant interest" means a direct or indirect interest in ten per cent. or more of the equity share capital (as defined in that Act). 5 Subject to the requirements of the Panel in accordance with the City Code: a) Derwent reserves the right to waive, in whole or in part, all or any of the above conditions, except conditions 1, 2 and 3(b), so far as they relate to LMS, the wider LMS Group, or any part thereof; and b) LMS reserves the right to waive, in whole or in part, all or any of the above conditions, except conditions 1, 2 and 3(b), so far as they relate to Derwent, the wider Derwent Group, or any part thereof. 6 If Derwent is required by the Panel to make an offer for LMS Shares under the provisions of Rule 9 of the Code, Derwent may make such alterations to any of the above conditions as are necessary to comply with the provisions of that Rule. 7 Derwent reserves the right to implement the Transaction by way of a takeover offer as defined in paragraph 1 of Schedule 2 to the Takeovers Directive (Interim Implementation) Regulations 2006. In such event, the Transaction will be implemented on the same terms (subject to appropriate amendments including (without limitation) an acceptance condition set at 90 per cent. of the shares to which the Transaction relates or such other percentage as may be required by the Panel), so far as applicable, as those which would apply to the implementation of the Transaction by means of the Scheme. 8 The Transaction will not proceed if, after the date of this announcement and before the LMS Extraordinary General Meeting, the Transaction is referred to the Competition Commission. 9 The Transaction will be governed by English law and be subject to the jurisdiction of the English courts, to the conditions set out in this announcement and in the formal Scheme Document. PART B Certain further terms of the Transaction 1 Fractions of New Derwent Shares will not be allotted or issued pursuant to the Scheme. Fractional entitlements to New Derwent Shares will be aggregated and sold in the market and the net proceeds of sale distributed pro rata to persons entitled thereto. 2 The LMS Shares which will be acquired under the Transaction will be acquired fully paid and free from all liens, charges, equitable interests, encumbrances, rights of pre-emption and any other rights and interests of any nature and together with all rights now or hereafter attaching to them, subject, in the case of dividends, to the entitlement to an interim dividend not exceeding 1.2 pence per LMS Share referred to in section 2 of the main announcement. 3 The New Derwent Shares will be issued credited as fully paid and will rank pari passu in all respects with the Derwent Shares in issue at the time the New Derwent Shares are delivered pursuant to the Transaction, including the right to receive and retain dividends and other distributions (if any) paid by reference to a record date after the Effective Date, save that they will not rank for any final dividend which may be declared in respect of the year ending 31 December 2006. Applications will be made to the UK Listing Authority for the New Derwent Shares to be admitted to the Official List and to the London Stock Exchange for the New Derwent Shares to be admitted to trading. 4 The New Derwent Shares have not been and will not be registered under the United States Securities Act of 1933 (as amended) nor under any of the relevant securities laws of Canada, Japan or Australia. Accordingly, the New Derwent Shares may not be offered, sold or delivered directly or indirectly, in the United States, Canada, Japan or Australia nor to any United States person, except pursuant to exemptions from applicable requirements of any such jurisdiction. Appendix 2 Bases and Sources 1 Unless otherwise stated: • financial information relating to Derwent has been extracted or provided (without material adjustment) from the audited annual report and accounts for Derwent for the year ended 31 December 2005 reported under IFRS and the unaudited interim report and accounts for the six months ended 30 June 2006 reported under IFRS; and • financial information relating to LMS has been extracted or provided (without material adjustment) from the audited annual report and accounts for LMS for the year ended 31 March 2006 reported under IFRS. 2 The value of the Transaction on an all share basis is calculated • on the assumption that no elections are made for the Partial Cash Alternative; • by reference to a price of £19.94 per Derwent Share (being the Closing Price on 13 November 2006, the last Business Day prior to this announcement); and • on the basis of the number of LMS Shares in issue referred to in paragraph 5 below. 4 As at the close of business on 13 November 2006, Derwent had in issue 53,656,492 ordinary shares of 5 pence each; and LMS had in issue 329,975,015 ordinary shares of 25 pence each. The International Securities Identification Number for Derwent Shares is GB0002652740 and for LMS Shares is GB00B12MHC11. 5 The fully diluted share capital of LMS is calculated on the basis of: • the number of issued LMS Shares; and • any further LMS Shares which may be issued on the exercise of options under the LMS Share Schemes, amounting to 5,635,257 LMS Shares 6 The respective percentages that Derwent Shareholders and LMS Shareholders will own of the Derwent London Group, assuming a Transaction on an all share basis, are calculated on the following basis: • by reference to Derwent's fully diluted share capital of 54,412,542 Derwent Shares; and • by reference to LMS's fully diluted share capital as referred to in paragraph 5 above 7 The premium calculations to the price per LMS Share in this announcement have been calculated by reference to the Closing Price of £19.94 per Derwent Share, being the Closing Price on 13 November 2006. 8 The figure of £2.25 billion of property assets for the Derwent London Group is derived from the figure of £1.140 billion given in the interim accounts of Derwent for the six months ended 30 June 2006 and the figure of £1.114 billion given in LMS's annual report and accounts for the financial year ended 31 March 2006. 9 The figure of 5.6 million square feet for the property assets for the Derwent London Group is derived from the figure of 2.6 million square feet given in Derwent's interim results presentation in respect of the six months ended 30 June 2006 and the figure of 3.0 million square feet provided by LMS management. 10 The source for the statement that Derwent management has delivered a total shareholder return of 25 per cent. per annum over the last 5 years is Datastream. Appendix 3 DEFINITIONS In this announcement, the following definitions apply unless the contextrequires otherwise: "Alternative Proposal" an offer or possible offer or proposal put forward by any third party which is not acting in concert with Derwent in respect of or for all or a significant proportion (being in excess of 25 per cent. when aggregated with shares already held by the third party and anyone acting in concert (as defined in the City Code) with it) of the LMS Shares or the sale or possible sale of the whole or any substantial part of the assets of the LMS Group or in relation to a transaction which is otherwise inconsistent with the consummation of the Transaction, in each case howsoever it is proposed that such offer, proposal or transaction be implemented (whether legally binding or not) "Australia" the Commonwealth of Australia and its dependant territories "Business Day" any day on which banks are generally open in England and Wales for the transaction of business, other than a Saturday, Sunday or public holiday "Canada" Canada, its provinces and territories and all areas subject to its jurisdiction or any political sub-division thereof "Capital Reduction" the proposed reduction of share capital of LMS pursuant to the Scheme "City Code" the City Code on Takeovers and Mergers issued from time to time by or on behalf of the Panel "Closing Price" the closing middle market price of a relevant share as derived from SEDOL "Companies Act" the Companies Act 1985 (as amended) "Conditions" the conditions to the Transaction set out in Appendix 1 to this announcement "Court" the High Court of Justice in England and Wales "Court Hearings" the two separate hearings by the Court of the petition to sanction the Scheme and to confirm the cancellation and extinguishment of the Scheme Shares provided for by the Scheme under section 137 of the Companies Act "Court Orders" the First Court Order and the Second Court Order "Derwent" Derwent Valley Holdings plc, registered in England and Wales (no. 1819699) "Derwent Board" the board of Derwent Directors "Derwent Directors" the directors of Derwent "Derwent Extraordinary General Meeting" the extraordinary general meeting of Derwent to consider and, if thought fit, to approve the Transaction "Derwent Group" Derwent and its subsidiary undertakings "Derwent London" Derwent following its change of name on or around the Effective Date to Derwent London plc "Derwent London Group" the Derwent Group (including the LMS Group) following the Effective Date "Derwent Shareholder Circular" the circular to be sent to Derwent Shareholders outlining the Transaction and containing the notice convening the Derwent Extraordinary General Meeting "Derwent Shareholders" the holders of Derwent Shares "Derwent Share Schemes" the Derwent Executive Share Option Scheme and the Derwent Performance Share Plan "Derwent Shares" ordinary shares of 5 pence each in the capital of Derwent "Effective" in the context of the Transaction: (i) if the Transaction is implemented by way of the Scheme, the Scheme having become effective pursuant to its terms; or (ii) if the Transaction is implemented by way of the Offer, the Offer having been declared or become unconditional in all respects in accordance with the requirements of the City Code "Effective Date" the date on which the Transaction becomes Effective "First Court Order" the order of the Court sanctioning the Scheme under section 425 of the Companies Act "FSMA" the Financial Services and Markets Act 2000 (as amended) "Japan" Japan, its cities, prefectures, territories and possessions "JPMorgan Cazenove" JPMorgan Cazenove Limited "LIBOR" means the rate of interest determined by Derwent on the basis of the average (rounded down where necessary to the nearest whole multiple of one-sixteenth of 1.0 per cent.) of the respective rates per annum at which any two London clearing banks selected by Derwent are prepared to offer six month Sterling deposits of £2 million to leading banks in the London inter-bank market at or about 11.00 a.m. on the first Business Day of the relevant interest period and a certificate in writing, under the hand of a duly authorised official of Derwent, shall be conclusive evidence of that rate "Listing Rules" the rules and regulations of the UKLA, as amended from time to time and contained in the UKLA's publication of the same name "LMS" London Merchant Securities plc, registered in England and Wales (no. 7064) "LMS Board" the board of LMS Directors "LMS Directors" the directors of LMS "LMS Extraordinary General Meeting" the extraordinary general meeting of LMS Shareholders as may be convened for the purposes of considering and, if thought fit, approving certain resolutions required to implement the Scheme "LMS Group" LMS and its subsidiary undertakings "LMS Shareholders" holders of LMS Shares "LMS Share Schemes" the LMS Executive Share Option Scheme, the LMS Share Incentive Plan, the LMS Sharesave Scheme and the LMS Long Term Incentive Plan "LMS Shares" prior to the Reorganisation Record Time, issued ordinary shares of 25 pence each in the capital of LMS and after the Reorganisation Record Time, the shares in the capital of LMS into which such ordinary shares are converted "Loan Note Option" means the option whereby LMS Shareholders (other than certain Overseas Shareholders) who have elected for the Partial Cash Alternative may elect to receive Loan Notes instead of some or all of the cash consideration to which they would otherwise be entitled under the Transaction including under the Mix and Match Facility "Loan Notes" means the floating rate loan notes of Derwent issued pursuant to the Loan Note Option "London Stock Exchange" London Stock Exchange plc, together with any successors thereto "Minute" the minute (approved by the Court) showing with respect to LMS's share capital, as altered by the Second Court Order confirming the Capital Reduction, the information required by section 138 of the Companies Act "Mix and Match Facility" the mix and match facility under which LMS Shareholders electing for the Partial Cash Alternative may, subject to availability, elect to vary the proportion of New Derwent Shares and cash they will receive under the Transaction "New Derwent Shares" the Derwent Shares proposed to be issued and credited as fully paid pursuant to the Transaction "Offer" should Derwent elect to implement the Transaction by way of a takeover offer as defined in paragraph 1 of Schedule 2 to the Takeovers Directive (Interim Implementation) Regulations 2006, the recommended offer to be made by or on behalf of Derwent to acquire all of the LMS Shares on the terms and subject to the conditions set out in this announcement and to be set out in the Offer Document and, where the context admits, any subsequent revision, variation, extension or renewal of such Offer "Offer Document" should Derwent elect to make the Offer, the document to be sent to LMS Shareholders which will contain, inter alia, the terms and conditions of the Offer "Official List" the official list of the UKLA "Overseas Shareholders" Scheme Shareholders who are resident in, ordinarily resident in, or citizens of, jurisdictions outside the United Kingdom "Panel" the Panel on Takeovers and Mergers "Partial Cash Alternative" the partial cash alternative described in section 2 of this announcement "Pounds", "pence" and "£" the lawful currency of the United Kingdom "Prospectus" a prospectus under the Prospectus Rules containing information on Derwent and the New Derwent Shares "Registrar of Companies" the Registrar of Companies in England and Wales, within the meaning of the Companies Act "REIT" Real Estate Investment Trust "Reorganisation Record Time" the time and date on which the First Court Order is delivered to the Registrar of Companies for registration "Restricted Territories" Australia, Canada or Japan or any other jurisdiction where either sending the Scheme Document or the Prospectus would violate the law of that jurisdiction "Rothschild" N M Rothschild & Sons Limited "Scheme" the proposed scheme of arrangement under section 425 of the Companies Act between LMS and the LMS Shareholders to implement the Transaction "Scheme Document" the circular to LMS Shareholders proposing the Scheme to be posted by LMS as soon as is reasonably practicable after the date of this announcement "Scheme Meeting" the meeting or meetings of LMS Shareholders (or the relevant class or classes thereof) as may be convened by order of the Court under section 425 of the Companies Act to consider and, if thought fit, approve the Scheme (with or without amendment) "Scheme Record Time" 6.00 p.m. on the Business Day before the Scheme becomes Effective "Scheme Shareholders" holders of Scheme Shares "Scheme Shares" (i) the LMS Shares in issue at the date of the Scheme Document; (ii) any LMS Shares issued after the date of the Scheme Document and before the Scheme Voting Record Time; and (iii) any LMS Shares issued at or after the Reorganisation Record Time and before 6.00 p.m. on the day before the date on which the Second Court Order is made in respect of which the original or any subsequent holders thereof are, or shall have agreed in writing to be, bound by the Scheme in each case other than LMS Shares beneficially owned by the Derwent Group "Scheme Voting Record Time" 6.00 p.m. on the day which is two days before the Scheme Meeting or, if the Scheme Meeting is adjourned, 6.00 p.m. on the second day before the date of such adjourned meeting "Second Court Order" the order of the Court confirming the Capital Reduction "SEDOL" the London Stock Exchange Daily Official List "subsidiary", "subsidiary undertaking", " have the meanings ascribed to them under the Companiesassociated undertaking" and "undertaking" Act "Transaction" the proposed share for share merger of Derwent and LMS by means of the Scheme, or, should Derwent so elect, by means of the Offer "UBS" or "UBS Investment Bank" UBS Limited "UKLA" the UK Listing Authority, being the Financial Services Authority acting in its capacity as the competent authority for the purposes of Part IV of FSMA "United Kingdom" or "UK" United Kingdom of Great Britain and Northern Ireland "United States", "US" or "USA" the United States of America, its territories and possessions, any State of the United States of America and the District of Columbia Unless otherwise stated, all times referred to in this announcement arereferences to London time. Any reference to any provision of any legislation shall include any amendment,modification, re-enactment or extension thereof. This information is provided by RNS The company news service from the London Stock Exchange

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Related Shares:

Derwent London