Open Letter to Chairman

Guinness Peat Group PLC 23 March 2001 The Chairman PERRY GROUP PLC Cambridge House Bluecoats Avenue Hertford Hertfordshire SG14 1PB Dear Sir SALE FOR £100,000 OF OPTION OVER £33.9m MOTOR DIVISION ('THE OPTION') Guinness Peat Group plc ('GPG') is the largest shareholder in Perry Group plc ('Perry'), with 4.4m shares, which represents some 16.7% of its issued capital. We have considered the transaction proposed in the Circular to Shareholders and thank you for giving us the opportunity of discussing it with you. We now write to set out the reasons why IT IS INCONCEIVABLE THAT THE PROPOSED TRANSACTION IS IN THE BEST INTERESTS OF SHAREHOLDERS. 1. Transaction in effect an Option You have described the proposed transaction as a 'Disposal of the Motor Division'. THIS IS NOT THE ECONOMIC SUBSTANCE. In reality, it amounts to the sale for £100,000 of an option over Perry's £33.9m Motor Division. This is a miserly sum since the Option is, undoubtedly, worth a multiple of this. 2. Not a Clean Exit Despite your statement that you have taken a strategic decision to exit Motors, the proposed transaction does not provide a clean exit and instead leaves Perry with exposure of at least £4.5m, (over and above its equity investment of £6m) to the future performance of the Motor Division. 3. Risk substantially Retained Notwithstanding your assertions to the contrary, the structure of the transaction is such that Perry retains substantially all the equity risk and a considerable amount of financing risk but, in direct contrast, has a derisory level of upside. 4. Inappropriate Timing Due to publicity associated with 'rip-off' Britain, delays in the impact of recent government initiatives being felt and the difficulties experienced in the Motor Industry in the last year, we cannot conceive of a worse time to have attempted the sale of the Motor Division. The result is a transaction which destroys millions of pounds in shareholder value. 5. Manageable Debt Position You state that, if the transaction is not approved by Shareholders, 'the Group may be required to seek the renegotiation of its banking covenants ..'. We do not dispute that Perry's debt requires careful management. However, the covenant position seems to us to be largely of Perry's own creation - in particular due to its decision to sell the Motor Division at the bottom of the market. Perversely a non-recourse financial structure along the lines of the proposed transaction would be an elegant solution, retaining all the upside inherent in the Motor Division and refinancing Perry's debt facilities at the same time. 6. Future Management of Motor Division Since the proposed managers of the option vehicle are already employed by Perry, the future management of the Motor Division is not at issue. PUT SIMPLY, THE PROPOSED OPTION IS AN EXCEPTIONAL DEAL FOR THE MANAGERS - IT IS A HEADS THEY WIN, TAILS PERRY LOSES SITUATION. Remedies If the Board remains determined to pursue an urgent restructure of Perry's exposure to the Motor Division, there seem to us to be two obvious remedies for the inadequacies of the proposed transaction: a) Restructure the transaction into a funding which is non- recourse to Perry, but using a similar structure. This would retain the upside of the Motor Division for Perry whilst involving no greater risk than the proposed option. b) Renegotiate the option being granted to the two managers so that shareholders are offered a pro rata participation. Under this alternative shareholders would benefit directly from the upside whilst Perry would retain the same risk and return from the deal. Conclusion Both the suggested remedies will require an adjournment of the EGM on Monday. IN THE ABSENCE OF THIS, OR SOME OTHER SATISFACTORY PROPOSAL, GPG WILL HAVE NO HESITATION IN VOTING AGAINST THE RESOLUTION TO BE PROPOSED. Yours faithfully Guinness Peat Group plc Blake A Nixon Executive Director


Coats Group (COA)
UK 100

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