Costain Regulatory News (COST)

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES OF AMERICA OR ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION. THIS IS AN ANNOUNCEMENT FALLING UNDER RULE 2.4 OF THE TAKEOVER CODE (THE "CODE"). IT DOES NOT REPRESENT A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.5 OF THE CODE. ACCORDINGLY, THERE CAN BE NO CERTAINTY THAT ANY OFFER WILL ULTIMATELY BE MADE.

Costain Group PLC

("Costain" or the "Company")

Statement regarding revised share and cash proposal to Mouchel Group plc ("Mouchel")

This is an announcement falling under Rule 2.4 of the Code. It does not represent a firm intention to make an offer under Rule 2.5 of the Code. Accordingly, there can be no certainty that any offer will ultimately be made.

Summary

·; Following extensive discussions with both Costain's and Mouchel's shareholders, the Board of Costain has, after detailed consideration tabled, with the Board of Mouchel on 19 January 2011, a significantly enhanced proposal to make a recommended offer for Mouchel (the "Revised Proposal")

·; The Revised Proposal comprises 0.5531 new Costain ordinary shares and 30.0p in cash for each Mouchel share which, based on Costain's share price of 222.75p as at the close of business on 20 January 2011 (being the last business day prior to the date of this announcement), in aggregate values each Mouchel share at approximately 153.2p. A mix and match facility would also be provided

·; The Revised Proposal represents a premium of approximately 171 per cent. to the closing Mouchel share price of 56.5p per share on 3 December 2010 (being the last business day prior to Mouchel entering into its current offer period)

·; The Board of Costain believes that the Revised Proposal is highly attractive to both Mouchel's and Costain's shareholders and would:

o create one of the UK's premier solutions providers, with major capabilities across consulting, construction and care, and meet the increasing demands of blue chip customers for larger, longer term "bundled" or multi-disciplinary contracts;

o establish a combined business with enhanced growth prospects through an enlarged private and public sector customer base and a combined forward order book of over £4 billion;

o provide Mouchel shareholders with a significant equity interest in a well capitalised, enlarged business, with a clear strategy for future profitable growth as well as the opportunity to realise cash for a proportion of their shareholdings;

o provide the necessary robust capital structure to allow Mouchel, as part of the enlarged Costain group, to meet the increasing trend towards larger, longer term multi-disciplinary contracts;

o address the likely continuing constraints on the strategic development and growth of Mouchel following a debt refinancing; and

o provide Mouchel with a highly attractive solution to the strategic and financial issues and uncertainty it faces. These issues were highlighted in Mouchel's announcement on 6 December 2010, which followed a series of material downgrades to analyst consensus forecasts for the business during 2010 and set out the potential for a dilutive equity fundraising and/or business disposals

·; Costain entered 2011 with a strong order book of £2.4 billion and a good pipeline of opportunities. Its solutions-led approach to meeting customers' needs, coupled with its balance sheet strength, has enabled Costain to continue this momentum in recent weeks with a number of further contract awards since the start of 2011

Commenting on the revised share and cash proposal, the Chairman of Costain, David Allvey, said:

"The strategic rationale for a combination has been widely supported and following extensive discussions with both sets of shareholders we have now significantly enhanced our proposal.

"We firmly believe that a combination of the two businesses is clearly in the best interests of both sets of shareholders and would bring resolution to the issues Mouchel faces for the benefit of its shareholders, customers and employees after a sustained period of uncertainty. Moreover, as part of a strong Costain group with a well-capitalised balance sheet, Mouchel would be better placed to compete effectively for major contracts.

"Having made our first approach to Mouchel seven weeks ago and as one of a number of options to deliver our strategy, we believe that our revised proposal is attractive to both sets of shareholders and should now encourage Mouchel's Board to engage with us without delay."

This summary should be read in conjunction with the main body of the announcement which follows.

Costain Group PLC

Statement regarding revised share and cash proposal to Mouchel

This is an announcement falling under Rule 2.4 of the Code. It does not represent a firm intention to make an offer under Rule 2.5 of the Code. Accordingly, there can be no certainty that any offer will ultimately be made.

Further to Costain's announcements on 22 December 2010 and 6 January 2011, the Board of Costain announces that it approached the Board of Mouchel on 19 January 2011 with a further enhanced proposal to make a recommended share and cash offer for the entire issued and to be issued share capital of Mouchel.

Following detailed consideration by the Board of Costain and discussions with both Costain's and Mouchel's shareholders, the Board of Costain has tabled the Revised Proposal which comprises 0.5531 new Costain ordinary shares and 30.0p in cash for each Mouchel share which, based on Costain's share price of 222.75p as at the close of business on 20 January 2011 (being the last business day prior to the date of this announcement), in aggregate values each Mouchel share at approximately 153.2p.

A mix and match facility would also be provided under the Revised Proposal to allow Mouchel shareholders to elect to receive additional cash or Costain shares to the extent that other Mouchel shareholders choose not to take up their cash or share entitlement in full. The overall proportion of the consideration to be satisfied in Costain shares and in cash would be fixed.

Benefits of the combination of Costain and Mouchel and the Revised Proposal

The Board of Costain continues to believe that Mouchel and Costain are highly complementary businesses and that a combination would provide significant benefits for both sets of shareholders. In particular, a combination would:

·; create one of the UK's premier solutions providers, with major capabilities across consulting, construction and care, delivered through two respected brands;

·; meet the increasing demands of blue chip customers who are consolidating their requirements into larger, longer term "bundled" or multi-disciplinary contracts and thereby significantly increase the addressable market for both businesses;

·; benefit from enhanced growth prospects through an enlarged private and public sector customer base and a combined forward order book of over £4 billion;

·; create a more efficient business through the generation of significant, realisable synergies; and

·; create significant value for both sets of shareholders through earnings enhancement*, dividend income and the potential for a re-rating of the combined business.

The Board of Costain believes that the Revised Proposal is highly attractive to both Mouchel's and Costain's shareholders and would:

·; provide the necessary robust capital structure to allow Mouchel, as part of the enlarged Costain group, to meet the increasing trend towards larger, longer term multi-disciplinary contracts;

·; address the likely continuing constraints on the strategic development and growth of Mouchel following a debt refinancing; and

·; provide Mouchel with a highly attractive solution to the strategic and financial issues and uncertainty it faces. These issues were highlighted in Mouchel's announcement on 6 December 2010, which followed a series of material downgrades to analyst consensus forecasts for the business during 2010 and set out the potential for a dilutive equity fundraising and/or business disposals.

*This statement is not a profit forecast and should not be interpreted to mean that the earnings of Costain for the current year or future years will necessarily match or exceed the historic or published earnings of Costain.

Current trading

As indicated in Costain's pre-close trading update on 6 January 2011, Costain continues to perform well and finished the year ended 31 December 2010 in line with Costain's Board's expectations. Furthermore, Costain entered 2011 with a strong order book of £2.4 billion and a good pipeline of opportunities.

Costain's solutions-led approach to meeting its customers' needs, coupled with its balance sheet strength, has enabled Costain to continue this momentum in recent weeks with further contract award announcements since the start of 2011, including:

·; the £59 million highways contract with Neath Port Talbot County Borough Council;

·; the appointment by Lewisham Council to rebuild four more schools at a total value of £71 million after financial close was reached on the fourth phase of its Building Schools for the Future ('BSF') project;

·; the contract for construction of the new Walton bridge as part of a £32.3 million scheme for Surrey County Council, creating the first new major road crossing over the River Thames in almost 20 years; and

·; the Early Contractor Involvement (ECI) contract with the Highways Agency to design and construct a major scheme on the A556 between the M56 and M6 motorways.

Further details of the Revised Proposal

The Revised Proposal represents:

·; an increase of approximately 44.8 per cent. over the value of the original proposal by Costain as announced on 22 December 2010 (being 105.8p per Mouchel ordinary share based on the closing price per Costain share on 21 December 2010) and approximately 13.5 per cent. over the value of the revised proposal by Costain as announced on 6 January 2011 (being 135p per Mouchel ordinary share based on the closing price per Costain share on 5 January 2011);

·; a premium of approximately 171.2 per cent. to the closing Mouchel share price of 56.5p per share on 3 December 2010 (being the last business day prior to Mouchel entering into its current offer period);

·; a premium of approximately 109.7 per cent. to the closing Mouchel share price of 73.0p per share on 21 December 2010 (being the last business day prior to the date of the first announcement by Costain that it had approached Mouchel); and

·; a premium of approximately 34.7 per cent. to the closing Mouchel share price of 113.75p per share on 20 January 2011 (being the last business day prior to the date of this announcement).

The Revised Proposal values the entire issued and to be issued share capital of Mouchel at £175 million on a fully diluted basis (assuming 1.8 million in the money options), with £141 million (approximately 80 per cent.) of the consideration to be satisfied in new Costain ordinary shares and £34 million (approximately 20 per cent.) in cash. Under the Revised Proposal, Mouchel's shareholders would receive approximately 50 per cent. of the enlarged issued share capital of Costain.

Costain's interest in Mouchel has the strong support of Costain's key lending banks.

The new Costain ordinary shares issued to Mouchel's shareholders would rank pari passu with the existing Costain ordinary shares, and the Proposal continues to assume that Mouchel's shareholders would be entitled to receive any final dividend declared by Costain in respect of the year ending 31 December 2010. Costain declared a final dividend of 5.5p per share in respect of the year ended 31 December 2009.

The making of any offer will be subject to a number of pre-conditions, including the satisfactory completion of due diligence and the recommendation of the Board of Mouchel. Costain reserves the right to waive any or all of such pre-conditions. In addition, Costain reserves the right to make an offer at an exchange ratio and / or level of cash on less favourable terms in the event that (i) the Board of Mouchel agrees and recommends any such change, (ii) a third party announces a firm intention to make an offer for Mouchel, or (iii) Mouchel announces, declares or pays a dividend or any other distribution or other payments to its shareholders, in which case there would be an equivalent reduction in the value of Costain's offer. Further, Costain reserves the right to vary the form and/or mix of consideration and/or introduce other forms of consideration.

Any further announcements will be made as appropriate.

Enquiries:

A copy of this announcement will shortly be available, free of charge, on the Company's website at www.costain.com

Investec (which is authorised and regulated in the United Kingdom by the Financial Services Authority) is acting exclusively for Costain and for no one else in connection with the possible offer and will not be responsible to anyone other than Costain for providing the protections afforded to Investec clients nor for providing advice in relation to the possible offer or any other matters referred to in this announcement.

This announcement does not constitute an offer to purchase any securities, or an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any offer to purchase or sell securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. No offering of securities may be made in the United States except pursuant to registration under the US Securities Act of 1933 or an exemption from registration.

The release, distribution or publication of this announcement in jurisdictions other than the UK may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the UK should inform themselves about and observe any applicable requirements. If you are resident outside the UK, you are responsible for first satisfying yourself as to the full observance of the laws and regulatory requirements of your jurisdiction.

Unless otherwise determined by Costain, this announcement and any proposed offer will not be made, directly or indirectly, in or into any jurisdiction where to do so would violate the laws of that jurisdiction (a "Restricted Jurisdiction") or the United States, or by the use of any means or instrumentally (including, without limitation, telex, facsimile transmission, telephone, internet or other forms of electronic communication) of interstate or foreign commerce, or of any facility of a national securities exchange of any Restricted Jurisdiction or the United States. Unless so determined by Costain, the proposed offer will not be capable of acceptance by any such use, means or instrumentally or facility of any Restricted Jurisdiction or the United States.

Copies of this announcement and documents relating to any offer will not be, and must not be, directly or indirectly, mailed or otherwise forwarded (including, without limitation, by telex, facsimile transmission, telephone, internet or other forms of electronic communication), distributed or sent in, into or from any Restricted Jurisdiction or the United States.

Forward looking statements

This announcement contains statements about Costain and Mouchel 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, among other things: Costain's expected growth markets over the next decade and the expected benefits of the proposed combination of Costain and Mouchel.

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, including, among others, risks relating to the successful combination of Mouchel with Costain; higher than anticipated costs relating to the combination of Mouchel with Costain; and facts relating to Mouchel that may impact the timing or amount of benefit realised from the combination that are unknown to Costain. 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. Costain disclaims any obligation to update any forward looking or other statements contained herein, except as required by applicable law.

Disclosure requirements of the Code

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any paper offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any paper offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any paper offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a paper offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any paper offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any paper offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a paper offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. If you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure, you should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129.