Proposed Return of Capital and New Holding Company

Diploma PLC
2 March 2000


DIPLOMA PLC ('DIPLOMA')
PROPOSED RETURN OF CAPITAL AND CREATION OF NEW HOLDING COMPANY

Further to the publication of Diploma's 1999 results on 22 
November 1999 announcing Diploma's intention to return capital to 
shareholders, Diploma today announces proposals to return 
approximately £50.3 million to shareholders, equivalent to £1 per 
share.  The return will be effected through a scheme of 
arrangement which will involve a capital reorganisation and the 
creation of a new holding company of the group, New Diploma PLC 
('New Diploma'). 

Under the proposals, which are subject to shareholder and Court 
approval, shareholders will receive:

For every 2 Diploma shares:    £2 in cash and One New Diploma 
                               share ('New Share')

and so in proportion for any other number of Diploma shares held.

If the resulting number of New Shares is not a whole number, the 
number of New Shares receivable by a shareholder will be rounded 
down to the nearest whole number.  Fractional entitlements for New 
Shares will be aggregated and sold in the market and the net 
proceeds will be distributed pro rata to the shareholders entitled 
thereto.  Application has been made for the existing Diploma 
shares to be delisted upon the scheme becoming effective and for 
the New Shares to be admitted to the Official List of the London 
Stock Exchange.

Background to and reasons for the return of capital

Within the last two years, Diploma has divested four of its more 
mature and lower margin businesses, South Hills Datacomm, IG, the 
SEI Macro Group and Robert Lee.  These businesses, which generated 
combined profits before interest and tax in 1998 of £7.4 million, 
have been sold for cash consideration totalling in the region of 
£75 million. Certain assets, principally properties with a net 
book value of £4.4 million have been retained in the group.  It is 
the intention of the board to sell on these assets when the 
opportunity arises.  Over this two year period Diploma has 
returned a total of £11.4 million to shareholders through share 
buy-backs.

Through the divestment programme and new investments, a re-shaped 
group is being created, reduced in scope and scale but more 
tightly focused on the Specialised Distribution businesses.  These 
serve industries which the Directors believe have potential for 
long term growth and which offer potential for the group to 
generate superior margins through the quality of customer service, 
depth of technical support and value-adding activities.  It is 
intended that future investment will be focused on the new core of 
businesses with a view to funding organic growth and acquisitions.

The Board has concluded that, following the disposals, the group 
has substantially more capital than it requires to fund its future 
growth and, accordingly, has decided that approximately £50.3 
million of surplus capital should be returned to shareholders.

In considering the appropriate level of capital return and the 
method by which this should be achieved, the Board has sought to:

-  maintain the financial strength of the group to allow future 
   investment in its reduced core of Specialised Distribution 
   businesses; and

-  benefit both shareholders and the group by making the return 
   of capital in as tax-efficient a manner as possible.

In addition, the introduction of New Diploma as the parent of 
Diploma will allow greater flexibility for possible future re-
structuring of the group's businesses.

Summary of the reorganisation

It is proposed that the capital reorganisation will be effected by 
the introduction of New Diploma as the new holding company of 
Diploma and its subsidiaries by way of a scheme of arrangement 
under section 425 of the Companies Act 1985.  The scheme of 
arrangement is subject to Court and shareholder approval.  Under 
the scheme of arrangement, the Diploma shares will be cancelled 
and shareholders will receive £2 and one New Share as 
consideration for the cancellation of every two of their existing 
Diploma shares as described above.

To become effective, the scheme requires, inter alia, the approval 
of a majority in number of shareholders present and voting, in 
person or by proxy at the Court meeting and representing at least 
75 per cent. in value of the Diploma shares held by them at the 
Court meeting.  The scheme is also conditional on the passing of a 
resolution at the extraordinary general meeting and admission to 
the London Stock Exchange.  The resolution to be proposed at the 
extraordinary general meeting requires approval by a majority 
representing three-fourths of the votes cast.  The scheme will 
become effective if it receives the sanction of the Court, with or 
without modification, and the Court confirms the reduction of 
capital (which forms part of the scheme) and an office copy of the 
Order is delivered to, and in relation to the reduction of capital 
is registered by, the Registrar of Companies.

Board, management and employees

The composition of the Board of New Diploma is the same as that of 
the Board of Diploma.  No changes are contemplated in the 
operations of the group in terms of business management or staff 
as a consequence of the proposals set out in the circular and 
listing particulars which will be posted to shareholders today 
(see below).  The rights of management and employees of the group 
and the total emoluments receivable by each of the Directors will 
not be varied as a result of the scheme.

Change of name

Under the scheme, shareholders will receive New Shares in place of 
their existing Diploma shares.  In order to maintain continuity, 
it is proposed that, conditional upon the scheme becoming 
effective, New Diploma will immediately change its name to Diploma 
PLC and the company now known as Diploma will immediately change 
its name to Diploma Holdings PLC.

Dividends and future dividend policy

The Directors intend to adopt a dividend policy consistent with 
the current dividend policy of Diploma.  The divestment programme 
has reduced the scale of the group's activities and the levels of 
its profits and cash flow.  The Directors do not therefore believe 
that maintaining the dividend at historic levels is appropriate at 
this stage of the group's development.  For the financial year 
ended 30 September 1999, the Directors proposed a reduced final 
dividend, providing total dividends of 9.0 pence per share for the 
year compared with 14.5 pence per share for the prior financial 
year.  The Directors intend, at the half year stage in 2000, to 
review the balance between interim and final dividend payments.

A circular convening a Court meeting and extraordinary general 
meeting together with full listing particulars relating to New 
Diploma will be posted to shareholders today.  The shareholder 
meetings will be held on 27 March 2000.  Conditional upon 
shareholder and Court approval, dealings in the New Shares are 
expected to commence on 18 April 2000 and capital repaid to 
shareholders on 25 April 2000.


Enquiries:

Diploma PLC
Bruce Thompson, Chief Executive Officer     020 7638 0934
Andrew Parkinson, Finance Director 

Deutsche Bank
Antony Macwhinnie, Director                 020 7545 8000



Deutsche Bank AG London, which is regulated in the United Kingdom 
by The Securities and Futures Authority Limited, is acting for 
Diploma PLC and New Diploma PLC in connection with the proposals 
described in this announcement and no-one else and will not be 
responsible to any one other than Diploma PLC and New Diploma PLC 
for providing the protections afforded to its customers or for 
providing advice in relation to the proposals.