2 May 2006

The boards of Interserve and MacLellan are pleased to announce that agreement has been reached between them on the terms of a recommended proposal whereby Interserve will acquire, for cash (with a Loan Note Alternative) and shares, the entire issued and to be issued ordinary share capital of MacLellan and acquire, for cash, the entire issued convertible preference share capital of MacLellan.

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The Acquisition values each MacLellan Share at approximately 116 pence and each Convertible Preference Share at 40.6 pence.  The Acquisition values the whole of the existing issued ordinary share capital of MacLellan at approximately £116 million and the whole of the existing issued convertible preference share capital at £2.03 million.

It is intended that the Acquisition will be effected by means of a scheme of arrangement of MacLellan under section 425 of the Companies Act.  However, Interserve reserves the right, in its sole discretion, to implement the Acquisition by making a takeover offer instead under section 428 of the Companies Act.

The board of Interserve believes that the Acquisition represents an attractive opportunity and is consistent with Interserve's strategy to develop its business, particularly in the facilities management sector.  The Acquisition will bring together MacLellan's broad private sector customer base with Interserve's complementary expertise and client exposure. The board of Interserve believes that the Acquisition will expand Interserve's customer base, enhance the range of services it offers and provide the Enlarged Interserve Group with a greater balance between private and public sector customers and access to a number of new market sectors.

The MacLellan Directors having been so advised by Investec consider that the terms of the Acquisition are fair and reasonable.  Accordingly, the MacLellan Directors intend to unanimously recommend that MacLellan Shareholders and, if applicable, the Convertible Preference Shareholder, vote in favour of the resolutions to be proposed at the Scheme Meeting(s) and the MacLellan Extraordinary General Meeting, as those directors who hold MacLellan Shares have undertaken irrevocably to do in respect of their own beneficial holdings of MacLellan Shares. 

The Acquisition

- The terms of the Acquisition value each MacLellan Share at approximately 116 pence and each Convertible Preference Share at 40.6 pence.  The terms of the Acquisition assume that the MacLellan final dividend of 1.25 pence per share proposed with respect to the issued ordinary share capital of MacLellan for the year ended 31 December 2005 (which was expected to be paid on 3 July 2006) shall not be paid unless the Acquisition is not completed.

- The consideration for each MacLellan Share is 0.0943 New Interserve Shares valued at approximately 36 pence (based on the Closing Price of an Interserve Share immediately prior to this Announcement) and 80 pence in cash (or, at the option of individual MacLellan Shareholders, Loan Notes).  MacLellan Shareholders shall not be entitled to Interserve's proposed final dividend of 10.1 pence per share for the year ended 31 December 2005. A Mix and Match Facility will also be available.

- The value of the Acquisition of each MacLellan Share represents a premium of approximately 11 per cent. over the Closing Price of a MacLellan Share of 104.5 pence on 21 March 2006, being the last Business Day before the announcement that MacLellan had received an approach.

- The value of the Acquisition of each MacLellan Share also represents a premium of approximately 36 per cent. over the average Closing Price of a MacLellan Share of 85.6 pence for the three months before 22 March 2006, being the Business Day of the announcement that MacLellan had received an approach.

- Irrevocable undertakings to vote in favour of the Acquisition have been received from MacLellan Shareholders including all of the MacLellan Directors, in respect of 7,675,041 MacLellan Shares representing approximately 7.7 per cent. of MacLellan's existing ordinary issued share capital. Further information on these irrevocable undertakings can be found below under paragraph 19.  Letters of intent indicating an intention to vote in favour of the Acquisition have also been received in respect of 12,267,632 MacLellan Shares representing approximately 12.3 per cent. of MacLellan's existing ordinary issued share capital.

- Accordingly, irrevocable undertakings to vote in favour of the Acquisition and letters of intent indicating an intention to vote in favour of the Acquisition at the Scheme Meeting(s) and the MacLellan Extraordinary General Meeting have been received in respect of 19,942,673 MacLellan Shares representing approximately 20.0 per cent. of MacLellan's existing ordinary issued share capital.

A letter of intent indicating an intention to vote in favour of the Acquisition has also been received from the Convertible Preference Shareholder.
The conditions to and certain further terms of the Acquisition are set out in Appendix I to this announcement.  The Acquisition is conditional on, amongst other things, the approval of Interserve Shareholders.

Acquisition Rationale
The board of Interserve believes that MacLellan represents an attractive opportunity, consistent with Interserve's strategy to develop its business, particularly in the facilities management sector.  The board of Interserve is confident that Interserve will be able to integrate MacLellan successfully, especially in the light of the compatibility of MacLellan's operations and complementary fit with Interserve's existing outsourcing businesses. The board of Interserve believes that the Acquisition will provide Interserve with access to a number of new market sectors, including retail, and strengthens its services in a number of areas including cleaning and security services.

The board of Interserve believes that the Acquisition will assist with the development of Interserve's product offering, in particular enabling:

ˉ a material expansion of Interserve's outsourcing businesses, increasing the proportion of revenues from these activities from approximately 49 per cent. to approximately 58 per cent.;
ˉ  a more even balance between the public and private sectors with non-public sector business increasing from approximately 30 per cent. to approximately 40 per cent. by revenue;
ˉ Interserve to leverage growth from an increasingly diverse customer base supported by a forward order book that is increased by approximately £500 million to approximately £5.3 billion.

The board of Interserve believes that MacLellan has attractive growth prospects, good visibility of forward revenues, a high quality customer base that includes leading companies such as Sainsbury's, Tesco, PruPim and Mapeley and that following the Acquisition it will provide the Enlarged Interserve Group with the potential to benefit from margin uplift by reducing overheads and improving operational efficiency.

The Acquisition is expected to be earnings enhancing for Interserve in 2007, being the first full year following completion of the Acquisition.1

The board of Interserve believes that there is a strong strategic and operational fit between MacLellan and its existing facilities service business.
Interserve is being advised by JPMorgan Cazenove. MacLellan is being advised by Investec.
Quotations

Commenting on the Acquisition, Adrian Ringrose, Chief Executive of Interserve, said:

"The Interserve board believes this acquisition represents an exciting opportunity in the development of Interserve as one of the UK's leading Infrastructure and Facilities Management businesses.  The acquisition of MacLellan represents the next stage in Interserve's development and its strategy for growth. The excellent strategic fit between the two companies and the services they provide to both public and private sectors will consolidate Interserve's position as one of the UK's leading support services companies with a high quality customer base and secure long term order book."

Commenting on the Acquisition, John Foley, Chief Executive of MacLellan, said:

"We are happy to recommend that MacLellan Shareholders vote in favour of this offer since the Acquisition price represents a 36 per cent. premium over our share price in the three months before our announcement on 22 March that we had received an approach and a 93 per cent. increase from the issue price of our last fundraising in October 2004.  MacLellan Shareholders will receive a significant proportion of their consideration in cash whilst the share element provides the potential to benefit from future growth of the combined companies."

This summary should be read in conjunction with the full text of this announcement which sets out further details of the Acquisition.  The conditions and certain further terms of the Acquisition are set out in Appendix I to this announcement and the final terms and conditions will be set out in the Scheme Document expected to be issued in due course. The sources and bases of information contained in this summary are set out in Appendix II to this announcement and the definitions of certain expressions used in this summary are contained in Appendix III to this announcement.