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Balfour Beatty launches a £32 million recommended cash offer for Birse Group, a leading UK regional civil engineering company

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 a profit forecast and should not be interpreted to mean that Balfour Beatty's future earnings per share will necessarily exceed or match those of any prior year.

Commenting on the Offer, Ian Tyler, Chief Executive of Balfour Beatty, said:

“The acquisition of Birse is a substantial step in delivering Balfour Beatty’s stated strategy of expanding and strengthening its regional presence in the UK civil engineering and building sectors. We are confident that by bringing the two businesses together, we can accelerate growth and significantly improve performance.

We attach great importance to the skills and experience of Birse’s management and employees, who have made excellent progress towards focusing the business on profitable activities. We expect them to play an important role in the further development of the enlarged business.”

Peter Watson, Chairman of Birse, said:

“We have always been responsive to the needs of our customers and the marketplace whilst focusing on shareholder value. With opportunities on the increase in our main infrastructure markets the benefit of the stronger covenant offered by Balfour Beatty will enable our businesses to take a leading position in meeting that demand and enhance their service proposition to customers. The Offer will further support the positive momentum behind our businesses and provide value for Birse Shareholders together with greater and more varied career opportunities for our people within the enlarged Balfour Beatty Group.”

THE OFFER

The boards of Balfour Beatty and Birse are pleased to announce that they have reached agreement on the terms of a recommended cash offer to be made by Balfour Beatty for the entire issued share capital of Birse.

Under the terms of the Offer, Birse Shareholders will be entitled to receive 16.625 pence in cash for each Birse Share. On this basis, the terms of the Offer value the entire issued share capital of Birse at approximately £32 million. A Loan 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 sector customers with engineering solutions from minor works through to major infrastructure development projects. For the year ended 31 December 2005, this business reported revenue (including its share of joint ventures) of £425 million. Its overall order book at the end of 2005 exceeded £1 billion.

Birse provides a range of civil engineering construction services to public and private sector customers throughout the UK. Its principal business is in civil engineering, with specialist skills in the coastal, rail and metro sectors and in plant hire. It is also a process engineer providing turnkey design and engineering services and solutions to customers in the water, power and nuclear sectors.

For the year ended 30 April 2005, as restated under IFRS, Birse reported revenue of £340.5 million, and profit before tax and exceptional operating items of £2.8 million.

Balfour Beatty believes that there is compelling strategic logic for the acquisition of Birse, which will strengthen further Balfour Beatty’s position as 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 accelerate the process already well underway at Birse of focusing its operations on activities in which it has a strong track record and which offer attractive margins. Balfour Beatty’s financial strength will allow these businesses more effectively to exploit opportunities in these sectors.

The Offer for Birse is expected to enhance shareholder value and be earnings enhancing* (see note below) for Balfour Beatty in 2007, the first full year following completion of the acquisition of Birse.

* The statement as to earnings per share enhancement does not constitute a profit forecast and should not be interpreted to mean that Balfour Beatty's future earnings per share will necessarily exceed or match those of any prior year.

RECOMMENDATION

The Birse Directors, who have been so advised by Rothschild, consider the terms of the Offer to be fair and reasonable. In providing advice to the Birse Directors, Rothschild has taken into account the commercial assessments of the Birse Directors. Accordingly, the Birse Directors will unanimously recommend Birse Shareholders to accept the Offer.

Connected parties of Birse Directors, Peter Watson and Martin Budden, holding Birse Shares comprised in certain trusts settled by Peter Birse, have irrevocably undertaken to accept the Offer in respect of their aggregate holding of 8,000,000 Birse Shares, representing approximately 4.2 per cent. of the issued share capital of Birse.

In addition, irrevocable undertakings to accept the Offer have been received from Peter Birse in respect of 11,115,685 Birse Shares, from Peter Birse and Helen Birse (as trustees) in respect of 12,755,135 Birse Shares which are comprised in certain trusts, and from HSBC Bank plc in respect of 19,439,838 Birse 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 plc will cease to be binding if a Higher Competing Offer is made for the Birse Shares.

Further details of these irrevocable undertakings are set out in section 5 and Appendix II to the attached announcement.

This summary should be read in conjunction with the full text of the following announcement. Appendix III to the following announcement contains definitions of certain terms used in this summary and the following announcement. The Offer Document and the Form of Acceptance will be posted to Birse Shareholders (other than to persons with addresses in any Restricted Jurisdiction), as soon as practicable and, in any event, within twenty-eight days of this announcement unless otherwise agreed with the Panel.

Citigroup, which is authorised and regulated by the Financial Services Authority, is acting exclusively for Balfour Beatty and no one else in connection with the Offer and this announcement and will not be responsible to anyone other than Balfour Beatty for providing the protections afforded to clients of Citigroup or for providing advice in connection with the Offer or this announcement or any matter referred to herein.

Rothschild, which is authorised and regulated by the Financial Services Authority, is acting exclusively for Birse and no one else in connection with the Offer and this announcement and will not be responsible to anyone other than Birse for providing the protections afforded to clients of Rothschild or for providing advice in connection with the Offer or this announcement or any matter referred to herein.

This announcement is for informational purposes only and does not constitute an offer to sell or invitation to purchase any securities or the solicitation of any vote for approval in any jurisdiction, nor shall there be any sale, issue or transfer of the securities referred to in this announcement in any jurisdiction in contravention of applicable law. The Offer will be made solely by the Offer Document and the Forms of Acceptance accompanying the Offer Document, which will contain the full terms and conditions of the Offer, including details of how the Offer may be accepted.

This announcement has been prepared for the purpose of complying with English law and the City Code and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws of jurisdictions outside the United Kingdom. The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law. Persons who are not resident in the United Kingdom or who are subject to other jurisdictions should inform themselves of, and observe, any applicable requirements.

The Offer will not be made, directly or indirectly, in, into or from a Restricted Jurisdiction where to do so would violate the laws in that jurisdiction, and the Offer is not capable of acceptance from or within a Restricted Jurisdiction. Accordingly, copies of this announcement and all documents relating to the Offer are not being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in, into or from a Restricted Jurisdiction where to do so would violate the laws in that jurisdiction, and persons receiving this announcement and all documents relating to the Offer (including custodians, nominees and trustees) must not mail or otherwise distribute or send them in, into or from such jurisdictions as doing so may invalidate any purported acceptance of the Offer. The availability of the Offer to Birse Shareholders who are not resident in the United Kingdom may be affected 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 will they 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 or other jurisdiction of the United States, nor have clearances been, nor will they be, obtained from the securities commission or similar authority of any province, territory or jurisdiction of Canada and no prospectus has been, or will be, filed, or registration made, under any securities law of any province or 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 and Investments Commission, nor have any steps been taken, nor will any steps be taken, to enable the Loan Notes to be offered in compliance with applicable securities laws of Japan. Accordingly, unless an exemption under relevant securities laws is available, the Loan Notes may not be offered, sold, resold, delivered or transferred, directly or indirectly, in or into a Loan Note Restricted Jurisdiction in which an offer of the Loan Notes would constitute a violation of the relevant laws of, or require registration thereof in, such jurisdiction or to, or for the account or benefit of, a person located in a Loan Note Restricted Jurisdiction.

In accordance with normal UK market practice, Balfour Beatty or its nominees or brokers (acting as agents) may from time to time make certain purchases of, or arrangements to purchase, Birse Shares outside the United States, other than pursuant to the Offer, before or during the period in which the Offer remains open for acceptance. These purchases may occur either in the open market at prevailing prices or in private transactions at negotiated prices. Any information about such purchases will be disclosed as required in the UK.

This announcement contains statements about Balfour Beatty and Birse that are or may be forward looking statements. All statements other than statements of historical facts included in this announcement may be forward looking statements. Without limitation, any statements preceded or followed by or that include the words “targets”, “plans” “believes”, “expects”, “aims”,” intends”, “will”, “may”, “anticipates”, “estimates”, “projects” or, words or terms of similar 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, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; (ii) business and management strategies and the expansion and growth of Balfour Beatty’s or Birse’s operations and potential synergies resulting from the Offer; and (iii) the effects of government regulation on Balfour Beatty’s or Birse’s business.

Such forward looking statements involve risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors could cause actual results to differ materially from those projected or implied in any forward looking statements. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof. Balfour Beatty and Birse disclaim any obligation to update any forward looking or other statements contained herein, except as required by applicable law.

Dealing Disclosure Requirements

Please note that certain aspects of the rules on disclosure of the Code have changed since 20 May 2006. The following represents a current summary of the position.

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” of Birse (including by means of an option in respect of, or a derivative referenced to, any such “relevant securities”) must be publicly disclosed by no later than 3.30 pm (London time) on the London business day following the date of the relevant transaction. This requirement will continue until the date on which the Offer becomes, or is declared, unconditional as to acceptances, lapses or is otherwise withdrawn or on which the “offer period” otherwise ends. If two or more persons act together pursuant to an agreement or understanding, whether formal 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 “relevant securities” 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 the London business day following the date of the relevant transaction.

A disclosure table, giving details of the companies in whose “relevant securities” “dealings” should be disclosed, and the number of such securities in issue, can be found on the Panel’s website at www.thetakeoverpanel.org.uk.

“Interests in securities” arise, in summary, when a person has long economic exposure, whether conditional or absolute, to changes in the price of securities. In particular, a person will be treated as having an “interest” by virtue of the ownership or control of securities, or by virtue of any option in respect of, or derivative referenced to, securities.

Terms in quotation marks are defined in the Code, which can also be found on the Panel’s website. If you are in any doubt as to whether or not you are required to disclose a “dealing” under Rule 8, please contact an independent financial adviser authorised under the Financial Services and Markets Act 2000, consult the Panel’s website at www.thetakeoverpanel.org.uk or contact the Panel on telephone number +44 (0) 20 7638 0129; fax +44 (0) 20 7236 7013.

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