Sale And Leaseback

Severfield-Rowen PLC
21 February 2001

Severfield-Rowen plc (the 'Company' or 'Severfield-Rowen')

Sale of Dalton Airfield Properties Limited which owns the principal place of
business of the group at Dalton Airfield Industrial Estate (the 'Dalton
Facility')



 1. Introduction

    At the time of the announcement of the interim results of the Company for
    the six months ended 30 June 2000 it was stated that the Company was
    contemplating the sale of the Dalton Facility subject to a lease in favour
    of the Company which, if achieved, would release substantial funds for
    strategic deployment by the Company and its subsidiary undertakings (the
    'Group'). We are pleased to announce that negotiations in relation to the
    Dalton Facility have reached a successful conclusion, subject to
    shareholder approval, and this announcement contains details of the
    proposed transaction.


    On 21 February 2001 the Company entered into a share sale agreement under
    which it has conditionally agreed to sell the entire issued share capital
    of its wholly owned subsidiary, Dalton Airfield Properties Limited
    ('DAPL'), to Dalton Airfield Estate Limited ('DAEL'), a company
    established by certain directors of the Company and a director of a
    subsidiary of the Company ('the DAEL Shareholders'), full details of which
    are set out below, for a cash consideration of £14 million payable on
    completion. DAPL owns the Dalton Facility which is the principal place of
    business of the Group.


    Six of the DAEL Shareholders are directors of the Company and are referred
    to below. The only other DAEL Shareholder is Mr Lindsay Ross who is
    managing director of the Company's wholly owned subsidiary
    Severfield-Reeve Projects Limited. In view of the involvement of Mr Peter
    Levine, Mr John Severs, Mr Peter Ellison, Mr Peter Emerson, Mr Peter
    Davison and Mr Brian Hick in the management and the equity of the Company
    and in the Proposals, these Board members have not taken part in the
    decisions taken by the Board relating to the Proposals as they are related
    parties for the purposes of this transaction. Accordingly, these decisions
    have been approved by ourselves, Keith Elliot and John Featherstone, as
    the independent directors (the 'Independent Directors'). It should be
    noted that all the DAEL Shareholders are related parties and, therefore,
    will abstain from voting on the resolution and they have undertaken to
    take all reasonable steps to ensure that their associates will also
    abstain from voting on the resolution at the extraordinary general meeting
    convened to approve the Proposals.


    As stated above, the DAEL Shareholders are related parties for the
    purposes of Chapter 11 of the Listing Rules of the UK Listing Authority
    (the 'Listing Rules'). Due both to this and the size of the share sale
    agreement and the option agreement, including the pre-emption right
    connected to the share sale, the Listing Rules require that the entering
    into of the share sale agreement and the entering into of the option
    agreement (the 'Proposals') be approved by the shareholders of the Company
    ('Shareholders'). Furthermore, the Proposals are substantial property
    transactions involving directors of the Company and must also be approved
    by the Shareholders by reason of section 320 of the Companies Act.
    Accordingly, the Proposals are conditional on the approval of
    Shareholders.


    This announcement sets out the background to the Proposals and the reasons
    why we, the Independent Directors, are recommending Shareholders to
    approve them.


 2. Background to the Proposals


On 16 February 2001 the Company transferred, as a going concern, the
undertaking and assets of its property rental business, comprising its
facility at Dalton Airfield Industrial Estate, referred to in this
announcement as 'the Property Rental Business', to DAPL, a wholly owned
subsidiary of the Company. The consideration for the transfer of the Property
Rental Business was £14 million and was satisfied by the issue to the Company
of 14,000,000 ordinary shares of £1 each in DAPL. In addition, immediately
following this transfer of the Property Rental Business, DAPL granted a lease
to the Company, for the term of 35 years at an initial annual rent of £1.36
million (the 'Occupational Lease'); the whole of the first year's rent under
the Occupational Lease being payable in advance. The advance rent has,
however, not yet been paid by the Company and remains as a debt due to DAPL
payable on demand. Following the grant of the Occupational Lease, those Group
companies currently occupying parts of the Dalton Facility will continue their
occupation on the same basis upon which they were in occupation prior to the
grant of the Occupational Lease. The consideration of £14 million in respect
of the Property Rental Business is equal to the value of the Dalton Facility
with the benefit of the Occupational Lease as at 16 February 2001 as set out
in the valuation report included within the circular which is being sent to
Shareholders today.


It is now proposed that, subject to the approval of Shareholders, the Company
should sell the entire issued share capital of DAPL to DAEL for a
consideration of £14 million payable in cash upon completion (the 'Share
Sale').


At the date of completion of the Share Sale the Company, DAEL and DAPL will
also enter into an option agreement, further details of which are set out in
the circular being sent to Shareholders today, under which:


 i. DAPL will grant to the Company a call option whereby, after a notification
    by DAPL and DAEL or by the Company of a change of control of either DAEL
    or DAPL or that it is contemplating the disposal of its interest in the
    Dalton Facility or any part of it, the Company may, before the expiration
    of twenty-eight days from the date of agreement or determination of the
    consideration payable for the Dalton Facility, require DAPL to sell the
    Dalton Facility back to the Company; and


ii. the Company will grant to DAPL a put option whereby, after a notification
    by the Company or by DAPL of a change of control of the Company, DAPL may,
    before the expiration of twenty-eight days from the date of agreement or
    determination of the consideration payable for the Dalton Facility,
    require the Company to buy the Dalton Facility back from DAPL.


Additionally, so that the Company will be aware of any change of control of
DAEL, each DAEL Shareholder has given an undertaking under seal to notify the
Company of any dealings with the legal or beneficial interest in his shares in
DAEL.


Neither the options nor the pre-emption right, further details of which are
set out in the circular being sent to Shareholders today, may be exercised
after ten years and three months from the date of completion of the Share
Sale. The consideration for the purchase and sale of the Dalton Facility under
the put option will be the higher of £15 million increased by 3 per cent each
year on a compound basis (plus VAT if applicable) and the market value of the
Dalton Facility, as agreed between the parties or determined by an independent
valuation (plus VAT if applicable), with such valuation to be made on the
assumption (if not the fact) that the Occupational Lease remains in existence.
The consideration for the purchase and sale of the Dalton Facility under the
call option and the pre-emption right will be the market value of the Dalton
Facility as agreed between the parties or determined in the same manner as for
the put option.


 1. Information on the Dalton Facility


    The Dalton Facility is owned by DAPL and is a freehold and long leasehold
    property at Dalton Airfield Industrial Estate, Dalton, near Thirsk, North
    Yorkshire. The site extends to approximately 11.4 hectares (28.3 acres).
    The long leasehold property is for a term of 99 years from 1 June 1988 at
    an annual rent of £35,000, subject to review, payable by DAPL to the
    superior landlord.


    The Dalton Facility has been steadily developed and expanded by the Group
    from a small site acquired in 1980 to its present size. Expenditure on the
    development of the Dalton Facility by the Group amounted to approximately
    £12.8 million as at 30 June 2000.


    The Dalton Facility currently comprises five industrial buildings, all
    constructed since 1981, housing the Group's five production lines, a
    workshop and ancillary industrial buildings covering over 400,000 square
    feet in aggregate. In addition, the Group's head offices of 17,233 square
    feet are situated at the Dalton Facility.


    The Dalton Facility was valued by FPD Savills ('Savills') on 16 February
    2001 for the purposes of this transaction at £14 million compared to a net
    book value of £14.1 million at 30 June 2000, the date of the Company's
    last interim report. The Independent Directors have relied upon the
    valuation report written by Savills, and included within the circular
    being sent to Shareholders today, in making their recommendation.




 2. Reasons for the Proposals


Your directors seek to ensure that the Group's resources are used effectively
so as to provide a maximised return on capital in all relevant circumstances
and to create value for Shareholders.


The Dalton Facility represents a substantial capital investment and the
retention by the Group of its ownership is no longer regarded by the directors
as the most effective employment of its capital. By way of contrast, the Share
Sale would release significant capital which can then be deployed more
effectively to strengthen the business.


During the latter part of last year considerable efforts were made by the
directors, in conjunction with the Company's property advisers, Savills, to
effect a sale and leaseback of the Dalton Facility on the open market based
upon stipulated terms of leaseback both as to rent and other conditions. As
the Dalton Facility has made, and continues to make, a vital contribution to
the success of the Group, your directors were seeking a purchaser of the
Dalton Facility who could be expected to hold the property in the medium to
long term and who both knew and understood the Group's business and the
property's role in maintaining the Group's prosperity.


As a result of this action a number of written offers were received, the
highest being for £14 million from a newly formed company, based in the
Channel Islands, established by an overseas property investor. Negotiations
with this prospective purchaser reached an advanced stage before the Company
withdrew when the directors came to the view that the Company's requirements
could not be fulfilled by the offeror in the manner that your directors
wished. Whilst it was disappointing to withdraw from these negotiations, the
directors considered that this was in the best interests of the Group.


Since the overall rationale for the release by the Company of the value of the
Dalton Facility remained, DAEL has proposed, through the Share Sale and the
option agreement, to purchase the Dalton Facility for the same consideration
of £14 million and on terms which are more advantageous to the Company than
those proposed during the previous negotiations.


We, as the Independent Directors, consider that the advantages to the Group of
the Proposals include, inter alia, the following:


 i. DAEL is owned by key directors of the Group who have a commitment and
    incentive to ensure the Group's continued success and prosperity;


ii. the Dalton Facility will be owned directly by persons who understand the
    operational needs of the Group and the importance of the property to its
    future success;


iii. the Company has a right, at market value, to buy-back the Dalton Facility
    in the event of either a change of control of DAEL or DAPL or a proposed
    sale of the Dalton Facility;


iv. the articles of association of DAEL provide that, subject to there being
    no change of control of the Company, if any DAEL Shareholder leaves the
    employment of the Group and at any time thereafter commences employment
    with one of the Group's competitors, he must then offer his shares in DAEL
    back to the other members of DAEL at par thereby creating an incentive for
    the DAEL Shareholders not to join the Group's competitors. Each DAEL
    Shareholder has undertaken to vote against any resolution to delete, amend
    or alter the effect of that article.


The Company intends to use the funds realised from the Share Sale, combined
with the Group's existing financial resources and facilities, for the
following purposes:


 i. to fund the new plate line, referred to in the Chairman's statement in our
    last interim report, at an expected cost of £5 million;


ii. to finance our ongoing share buy-back programme; and


iii. to provide additional working capital.


Until utilised as stated above, the expected net proceeds of the Share Sale of
£13.6 million will be placed on deposit with our bank.


Furthermore, in the medium to longer term, the net proceeds of the share sale
will place the Group in a stronger position to exploit opportunities for
growth as and when they may arise, as well as demonstrating to our
international customer base the security of the Group's financial position.
The funds realised will place the Group in an unsurpassed position of
financial strength within our domestic market.


We consider that the value of the shares being sold justifies the
consideration received by the Company.


At the Annual General Meeting held on 30 May 2000 the Company authorised the
Board to purchase for cancellation up to ten per cent of the issued share
capital of the Company. This authorisation will expire on the earlier of the
conclusion of the next Annual General Meeting of the Company and 29 August
2001.


 1. Financial effects of the Proposals


    From the date of completion of the Proposals, the Group will initially
    incur ongoing rental charges of £1.36 million per annum under the
    Occupational Lease. However, the Group will not bear future depreciation
    charges on the Dalton Facility which amounted to approximately £94,000 per
    annum in 1999 and, pending utilisation of the net proceeds from the Share
    Sale for the purposes stated in paragraph 4 above, there will also be a
    generation of net investment income. Nonetheless, the directors believe
    that, if the entire net proceeds of the Share Sale were to be placed on
    deposit for a twelve month period from the date of completion, the
    Proposals would have an adverse effect on earnings during that period
    after taking account of the rent payable under the Occupational Lease.


    However, the directors expect such adverse effects to be short term and
    intend to utilise the net proceeds of the Share Sale for the purposes
    stated in paragraph 4 above, which they believe are likely to enhance the
    future earnings of the Group in the medium to longer term.


    No Capital Gains Tax is anticipated to be payable by the Company either on
    the transfer of the Property Rental Business to DAPL or on the Share Sale.
    As would have happened as a result of a transfer of the Dalton Facility
    under the previous negotiations, the Company will suffer a liability of
    approximately £630,000 in respect of claw back of industrial buildings
    allowances by the Inland Revenue.


    The entering into of the option agreement will have no immediate financial
    effect on the Group.


 2. Principal terms of the Proposals


Share sale agreement


Under the share sale agreement, which is conditional on the passing of the
ordinary resolution to be proposed at the extraordinary general meeting on 9
March 2001, entered into on 21 February 2001, the Company agreed to sell the
entire issued share capital of DAPL to DAEL for a cash consideration of £14
million payable on completion of the Share Sale. DAPL owns the Group's
freehold and long leasehold interests in the Dalton Facility and therefore, on
completion of the Share Sale, control of the Dalton Facility will pass to DAEL
subject to the rights of the Company under the Occupational Lease.


Option agreement


At the date of completion of the share sale agreement the Company, DAEL and
DAPL will enter into the option agreement under which:


 i. DAPL will grant to the Company:


     a. a call option whereby, after a notification by DAPL and DAEL or the
        Company following a change of control of either DAEL or DAPL, the
        Company may, before the expiration of twenty-eight days from the date
        of agreement or determination of the consideration payable for the
        Dalton Facility, require DAPL to sell the Dalton Facility back to the
        Company; and


     b. a pre-emption right whereby, after a notification by DAPL that it is
        contemplating the disposal of its interest in the Dalton Facility or
        any part of it, the Company may, before the expiration of twenty-eight
        days from the date of agreement or determination of the consideration
        payable for the Dalton Facility, require DAPL to sell the Dalton
        Facility back to the Company; and


 i. the Company will grant to DAPL a put option whereby, after a notification
    by the Company or DAPL following a change of control of the Company, DAPL
    may, before the expiration of twenty-eight days from the date of agreement
    or determination of the consideration payable for the Dalton Facility,
    require the Company to buy the Dalton Facility back from DAPL.


Each of the directors has confirmed to the Company that he is not aware of any
circumstances which might reasonably be expected to result in a change of
control of the Company, DAEL or DAPL.


Neither the options nor the pre-emption right may be exercised after ten years
and three months from the date of completion of the Share Sale. The
consideration for the purchase and sale of the Dalton Facility under the put
option will be the higher of £15 million increased by 3 per cent each year on
a compound basis (plus VAT if applicable) and the market value of the Dalton
Facility, as agreed between the parties or as determined by an independent
valuation (plus VAT if applicable), with such valuation to be made on the
assumption (if not the fact) that the Occupational Lease remains in existence.
The consideration for the purchase and sale of the Dalton Facility under both
the call option and the pre-emption right will be the market value of the
Dalton Facility as agreed between the parties or determined in the same manner
as for the put option.


Completion of the share sale agreement and the option agreement are
conditional upon the passing of the ordinary resolution at the extraordinary
general meeting.


 1. Current trading and prospects


    The year 2000 closed on a most satisfactory note with trading levels
    broadly in line with expectations. In the context of our industry it was a
    truly outstanding performance and highlighted the demonstrable and growing
    distance between our Group and its peer group in the sector. The Group is
    currently operating at near record levels with excellent order books of £
    69 million and buoyant levels of enquiries.


    Whilst industry margins remain depressed the production efficiency of the
    Group provides returns significantly above the industry average.
    Accordingly, the Group is well placed to benefit substantially from any
    future increase in market prices.


 2. Extraordinary General Meeting


    Notice of an extraordinary general meeting, which is to be held at Le
    Meridien Queens Hotel, City Square, Leeds LS1 1PL at 12.00 noon on 9 March
    2001, is included in the circular which is being sent to Shareholders
    today. At this meting an ordinary resolution will be proposed to approve
    the Proposals including approval of the share sale agreement and the
    option agreement.


 3. Related party interests


    The DAEL Shareholders and their connected persons own a total of 1,170,284
    ordinary shares in the Company ('Ordinary Shares'), representing
    approximately 5.92 per cent of the Company's issued ordinary share
    capital, and hold options over 259,000 Ordinary Shares and have
    conditional rights over 79,490 Ordinary Shares under the Severfield-Rowen
    plc 1999 Annual Deferred Bonus Share Scheme. All the DAEL Shareholders are
    related parties to the Proposals under Chapter 11 of the Listing Rules.
    Accordingly, given this, they will abstain from voting and they have
    undertaken to take all reasonable steps to ensure that their associates
    will also abstain from voting at the extraordinary general meeting
    convened to approval the Proposals.


 4. Recommendation


We the Independent Directors, who have been so advised by Hoare Govett,
consider that the Proposals are in the best interests of the Company and of
the Shareholders as a whole, and that the transaction is fair and reasonable
so far as the shareholders of the Company are concerned. In providing advice
to the Independent Directors, Hoare Govett has taken account of the
Independent Directors' commercial assessment both of the Proposals and of the
current and future prospects of the Group. Accordingly, we unanimously
recommend that the Shareholders vote in favour of the resolution as we will do
in respect of our holdings of 83,750 Ordinary Shares, representing
approximately 0.42 per cent of the issued ordinary share capital of the
Company. All the DAEL Shareholders are related parties to the Proposals under
Chapter 11 of the Listing Rules. Accordingly, given this, they will abstain
from voting and they have undertaken to take all reasonable steps to ensure
that their associates will also abstain from voting at the extraordinary
general meeting convened to approve the Proposals.




Contacts

Severfield-Rowen plc

Keith Elliott, Non-executive Director                    Tel: [phone]

Peter Levine, Non-executive Chairman                Tel: [phone]




Hoare Govett Limited (financial adviser and stockbroker to Severfield-Rowen
plc)

Justin Jones                                   Tel: [phone]

Ranald McGregor-Smith


Financial Dynamics (public relations adviser to Severfield-Rowen plc)

Richard Mountain                              Tel: [phone]




Other information

A circular will be sent to Shareholders today which provides additional
information on the proposed sale and why the Board considers the proposed sale
to be in the best interests of the Company and of the Shareholders as a whole.


This announcement has been issued by, and is the sole responsibility of
Severfield-Rowen plc and its directors and has been approved solely for the
purposes of section 57 of the Financial Services Act 1986 by Hoare Govett
Limited.


Hoare Govett Limited, which is regulated by The Securities and Futures
Authority Limited, is acting exclusively for Severfield-Rowen plc and no one
else in connection with the proposed sale and will not be responsible to any
other person for providing the protections afforded to customers of Hoare
Govett Limited or advising any such person in relation to the proposed sale.


END