Recommended Offer to acquire Peterhouse Group plc for £105.7 million to be made by Credit Suisse First Boston (Europe) Limited on behalf of Babcock International Group PLC

BABCOCK INTERNATIONAL GROUP EXPANDS IN CIVIL SUPPORT SERVICES MAJOR STRATEGIC STEP

Babcock International Group PLC ("Babcock"), the support services company, announces that the Board of Babcock and the Independent Directors of Peterhouse Group plc ("Peterhouse") have agreed the terms of a recommended cash and shares offer for Peterhouse to be made by Credit Suisse First Boston (Europe) Limited ("Credit Suisse First Boston") on behalf of Babcock, to acquire the entire issued, and to be issued, ordinary share capital of Peterhouse.

TRANSACTION SUMMARY

• The Offer values each Peterhouse Share at 220 pence (which comprises 216 pence per share and the right to receive the proposed final dividend of 4 pence per share recommended on 9 March 2004) and the issued share capital of Peterhouse at £105.7 million.
• The Offer will be 1.1858 New Babcock Shares and 64.8 pence in cash plus the right to receive the proposed final dividend of 4 pence per share recommended on 9 March 2004 for each Peterhouse Share.
• The Offer represents:
  • a premium of 56.9 per cent. to the average closing middle market price of approximately 140.2 pence per Peterhouse Share in the period between 1 December 2003 and 30 January 2004; and
  • a premium of 26.1 per cent. over the closing middle market price of 174.5 pence per Peterhouse Share as at 30 January 2004, being the last business day prior to the announcement by Peterhouse that it had received an approach which might, or might not, lead to an offer for the whole of the issued share capital of Peterhouse.

ACQUISITION RATIONALE

The Directors of Babcock believe the Acquisition:

• furthers Babcock's strategy to broaden its customer base in the civil support services sector, which will provide greater security of earnings and enhanced growth opportunities;
• gives Babcock entry into a number of new markets where Peterhouse is well established in terms of both market share and reputation;
• provides opportunities to realise significant operational and financial synergies. The Directors of Babcock have identified approximately £4 million per annum of operational cost savings for the Enlarged Group*. Financial synergies are expected to add approximately a further £1.3 million per annum in after tax earnings*; and
• will enhance earnings, pre-goodwill and exceptional items, and yield a return on investment in excess of Babcock's weighted average cost of capital, as a result of the synergies outlined above, in the first full financial year following the completion of the Acquisition.**

Commenting on the Offer, Gordon Campbell, Chairman of Babcock said:

"Babcock has an excellent track record of integrating and managing businesses similar to Peterhouse. I am confident the Enlarged Group will produce a strong commercial offering, cost savings and a well-balanced portfolio. This will add value for both sets of shareholders, employees and customers."

Commenting on the Offer, Ted Adams, Deputy Chairman of Peterhouse said:

"Peterhouse fits well with Babcock and the Enlarged Group will have a significant presence in the infrastructure and support services markets. The Independent Directors of Peterhouse therefore unanimously recommend that Peterhouse Shareholders accept the Offer."

Babcock has received irrevocable undertakings from the Independent Directors of Peterhouse in respect of 363,004 Peterhouse Shares in aggregate representing 0.8 per cent. of Peterhouse's existing entire issued ordinary share capital. These irrevocable undertakings will only cease to be binding in the event that the Offer lapses or is withdrawn. In addition, non-binding indications of an intention to accept the Offer have been received from other Peterhouse Shareholders in respect of 5,746,583 Peterhouse Shares in aggregate representing 12.0 per cent. of Peterhouse's existing issued ordinary share capital.

This summary should be read in conjunction with the full text Announcement which also contains definitions of certain expressions used.

ENQUIRIES

Close Brothers Corporate Finance Limited
Tel: +44 (0)20 7655 3100

Peter Alcaraz, Director
Gareth Davies, Assistant Director
Stewart Reynolds, Manager

* The expected operational cost savings and financial synergies have been calculated on the basis of the existing cost and operating structures of the companies and by reference to current prices and the current regulatory environment. These statements of estimated cost savings and one-off costs for achieving them relate to future actions and circumstances which, by their nature, involve risks, uncertainties and other factors. Because of this, the cost savings referred to may not be achieved, or those achieved could be materially different from those estimated. This statement should not be interpreted to mean that the earnings per share in the first full financial year following the Acquisition, or in any subsequent period, would necessarily match or be greater than those for the relevant preceding financial period. Please refer to this paragraph when reading any text in the body of this announcement marked with an asterisk.

** The statement that the proposed Offer will be earnings enhancing, pre-goodwill and exceptional items, in the first full financial year following the completion of the Acquisition when compared to the earnings per share that Babcock would have achieved without the Acquisition, and will yield a return on investment in excess of its weighted average cost of capital, does not constitute a profit forecast and should not be interpreted to mean that the earnings per share in the first full financial year following the Acquisition, or in any subsequent period, would necessarily match or be greater than those for the relevant preceding financial period. Please refer to this paragraph when reading any text in the body of this announcement marked with two asterisks.