RNS Number:3340S
East Surrey Holdings PLC
21 November 2003



PRESS ANNOUNCEMENT



EMBARGOED UNTIL 7.00am


21 November 2003


EAST SURREY HOLDINGS PLC ("EAST SURREY HOLDINGS" OR THE "COMPANY")

PROPOSED ACQUISITION OF REMAINING 75.5 PER CENT. OF PHOENIX NATURAL GAS LIMITED 
("PHOENIX NATURAL GAS")

AND

PLACING AND OPEN OFFER OF 34,858,430 NEW ORDINARY SHARES AT 300 PENCE PER NEW 
ORDINARY SHARE



Major acquisition by East Surrey Holdings



East Surrey Holdings, which has been advised by Hawkpoint Partners Limited, is
pleased to announce the proposed acquisition of the remaining 75.5 per cent.
that it does not already own of Phoenix Natural Gas for approximately #177.8
million.  In addition, the Board announces a proposed Placing and Open Offer to
raise approximately #97.6 million (net of expenses).  In a separate
announcement, the Company has today released its interim results for the six
months ended 30 September 2003.



Highlights


-    East Surrey Holdings specialises in operating and developing regulated 
     infrastructure businesses, with a commitment to providing the highest 
     levels of quality and customer service.

-    Phoenix Natural Gas was established in 1992 to develop a natural gas market 
     and distribution system in the Greater Belfast area; it is currently owned 
     by BG Energy Holdings (which owns 51.0 per cent. of its issued share 
     capital), East Surrey Holdings (which owns 24.5 per cent. of its issued 
     share capital) and KeySpan (which also owns 24.5 per cent. of its issued 
     share capital).

-    East Surrey Holdings acquired its current holding of 24.5 per cent. of the 
     issued share capital of Phoenix Natural Gas from BG Energy Holdings in 
     March 2001 for a consideration of #49.7 million.

-    Between September 1996 and the end of September 2003, the total investment 
     of Phoenix Natural Gas in pipeline infrastructure amounted to approximately 
     #182 million.  As at 30 September 2003 Phoenix Natural Gas had constructed 
     over 2,392 kilometres of natural gas distribution mains, passing 
     approximately 210,000 properties, over 61,000 of which are connected and 
     burning natural gas.

-    East Surrey Holdings is proposing to raise approximately #97.6 million 
     (net of expenses) by way of an underwritten Placing and Open Offer of 
     34,858,430 New Ordinary Shares at 300 pence per share with the
     balance of the purchase price to be funded from new underwritten term bank 
     facilities.

-    The Company has received irrevocable undertakings and indications of 
     support to vote in favour of the Acquisition in respect of, in aggregate, 
     26,797,730 Existing Ordinary Shares, representing approximately
     53.8 per cent. of its issued ordinary share capital.

-    The purchase price will be satisfied on Completion as to approximately 
     #177.8 million in cash.

-    Both the Acquisition and the Placing and Open Offer are conditional, inter 
     alia, on Shareholder approval at an extraordinary general meeting to be 
     held on 15 December 2003.



Pat Barrett, Chairman of East Surrey Holdings, said:



"The addition of Phoenix Natural Gas is an important development for East Surrey
Holdings.  It is a high quality regulated business with an excellent record of
operational and financial performance and customer service.  Over the course of
the past two and a half years, since we first became involved with Phoenix, we
have been impressed with all aspects of the business.  We are confident that
Phoenix will continue to develop as a world class gas distribution company and
that this investment which we are making will enhance Shareholder value."



For further information contact:


East Surrey Holdings plc                                          01737 772000
Phil Holder, Managing Director
Nick Fisher, Finance Director

Phoenix Natural Gas plc                                          028 9055 5500
Peter Dixon

Hawkpoint Partners Limited                                       020 7665 4500
Paul Baines
Graham Paton

Collins Stewart Limited                                          020 7523 8350
Stephen Ford
Paul Compton
Stephen Roberts


City Profile                                                     020 7448 3244
Simon Courtenay



Web: www.eastsurreyholdings.com



The directors of East Surrey Holdings accept responsibility for the information
contained in this announcement.  To the best of the knowledge and belief of the
directors of East Surrey Holdings (who have taken all reasonable care to ensure
that such is the case), the information contained in this announcement is in
accordance with the facts and does not omit anything likely to affect the import
of such information.



Hawkpoint Partners Limited, which is authorised and regulated in the United
Kingdom by the Financial Services Authority, is acting exclusively for East
Surrey Holdings and no one else in connection with the Acquisition and the
Placing and Open Offer and will not be responsible to anyone other than East
Surrey Holdings for providing the protections afforded to its customers or for
providing advice in relation to the contents of this announcement or any
transaction or arrangement referred to herein.



Collins Stewart Limited, which is authorised and regulated in the United Kingdom
by the Financial Services Authority, is acting exclusively for East Surrey
Holdings and no one else in connection with the Acquisition and the Placing and
Open Offer and will not be responsible to anyone other than East Surrey Holdings
for providing the protections afforded to its customers or for providing advice
in relation to the contents of this announcement or any transaction or
arrangement referred to herein.



The New Ordinary Shares to be issued in connection with the acquisition and the
Placing and Open Offer have not been nor will they be registered under the
United States Securities Act of 1933 (as amended) or under the securities laws
of any state of the United States, any possession or territory of Canada, Japan,
Australia or the Republic of Ireland.



This summary should be read in conjunction with the full text of the attached
announcement.









PRESS ANNOUNCEMENT



EMBARGOED UNTIL 7.00am


21 November 2003


EAST SURREY HOLDINGS PLC ("EAST SURREY HOLDINGS" OR THE "COMPANY")

PROPOSED ACQUISITION OF REMAINING 75.5 PER CENT. OF PHOENIX NATURAL GAS LIMITED 
("PHOENIX NATURAL GAS")

AND

PLACING AND OPEN OFFER OF 34,858,430 NEW ORDINARY SHARES AT 300 PENCE PER NEW 
ORDINARY SHARE



Introduction



East Surrey Holdings, which has been advised by Hawkpoint Partners Limited,
announces that it has agreed subject, inter alia, to shareholder approval, to
acquire the remaining 75.5 per cent. that it does not already own of Phoenix
Natural Gas.  This company was established in 1992 to develop a natural gas
market and distribution system in the Greater Belfast area of Northern Ireland,
for approximately #177.8 million.  The consideration will be satisfied in cash
on Completion.



In order to satisfy part of the funds required to complete the acquisition, East
Surrey Holdings proposes to raise approximately #97.6 million (net of expenses)
by way of a placing and open offer of 34,858,430 New Ordinary Shares at 300
pence per New Ordinary Share, representing a discount of approximately 5.5 per
cent. to the closing middle-market price of an Existing Ordinary Share on 19
November 2003 (the latest practicable date prior to the date of this
announcement).  In addition, East Surrey Holdings will also raise a total of
#125 million under the terms of bank facilities underwritten by Barclays Bank
PLC.  The Open Offer Shares are to be placed conditionally with institutional
investors, subject to the right of Qualifying Shareholders to participate in the
Open Offer.  The Placing and Open Offer has been fully underwritten by Collins
Stewart and is conditional on, inter alia, Admission of the New Ordinary Shares.
Collins Stewart is acting as broker to the Placing and Open Offer.




Information on Phoenix Natural Gas



Phoenix Natural Gas was established in 1992 to develop a natural gas market and
distribution system in the Greater Belfast area and pursuant to this was granted
the Phoenix Licence in September 1996.  It is a joint venture company currently
owned by East Surrey Holdings (which owns 24.5 per cent. of its issued share
capital), BG Energy Holdings (which owns 51.0 per cent. of its issued share
capital) and KeySpan (which also owns 24.5 per cent. of its issued share
capital).



East Surrey Energy Investments (a wholly-owned subsidiary of East Surrey
Holdings) acquired its current 24.5 per cent. shareholding in Phoenix Natural
Gas from BG Energy Holdings in March 2001 for a total consideration of #49.7
million, since when it has invested approximately a further #10.0 million in the
business (as at 31 October 2003).



The Phoenix Licence



The Phoenix Licence is a joint conveyance and supply licence granted on the
following terms:



*           the Phoenix Licence requires 25 years' notice of termination and the
first date on which such notice can be served is 1 January 2007;

*           the conveyance licence was granted on an exclusive basis for a
period of 20 years; the licence has since been amended as a result of an EU
directive and the exclusivity provision has been reduced to 10 years.  However,
the Directors believe that due to the particular circumstances in developing the
infrastructure of the Greater Belfast area, the licence remains de facto
exclusive; and

*           the natural gas supply business licence was originally granted on an
exclusive basis until 31 December 2004 for small customers (i.e. those burning
less than 75,000 therms per annum) and for larger customers up until the earlier
of 31 December 2004 or the third anniversary of when natural gas became
available in any particular district.



Under the terms of its licence:



*           Phoenix Natural Gas is required to develop the natural gas
infrastructure within the Greater Belfast area by the end of 2008.  Development
in the context of the Phoenix Licence is defined as natural gas mains passing
within 50 metres of 81 per cent. of the properties in each of the districts
within its licensed area; and

*           the Acquisition requires the prior approval of DETI.  That approval
has been received subject, inter alia, to Phoenix performing in accordance with
certain undertakings to be entered into by East Surrey Holdings and designed to
provide assurances concerning the financial viability of Phoenix.



Current status



As at 30 September 2003, Phoenix Natural Gas employed over 400 staff (including
contractors) and had constructed over 2,392 kilometres of natural gas
distribution mains and passed by approximately 210,000 of the 250,000 properties
stated in the Phoenix Licence as being in its licence area.  Between September
1996 and the end of September 2003, total investment by Phoenix Natural Gas in
pipeline infrastructure amounted to approximately #182 million.  Although
Phoenix Natural Gas will continue to invest in pipeline infrastructure, the
majority of this investment is complete and the Directors expect that future
capital investment will relate largely to the infrastructure required to connect
new customers to the existing distribution mains and consequent reinforcements
to that system.  By the end of 2003 the total amount invested will be
approximately #187 million.



By 2016 Phoenix Natural Gas aims to have achieved a penetration of its target
population, namely the population of the Greater Belfast area, of approximately
75 per cent. of the properties passed by natural gas mains.  This compares to a
penetration rate for mains natural gas in the United Kingdom (excluding Northern
Ireland) of approximately 93 per cent.



The Phoenix Natural Gas internal development plan includes, inter alia, a target
for 217,500 customers to be connected and burning natural gas by 2016.  By 2016
it is estimated that there will be 290,000 properties (incorporating growth
generated from new build properties) passed by the Phoenix Natural Gas
distribution mains.



As at the end of September 2003, Phoenix Natural Gas had connected more than
61,000 customers (comprising approximately 6,000 industrial and commercial
customers and 55,000 domestic customers) with a total natural gas demand of
approximately 100 million therms per annum.  This number of connected customers
is in line with the Phoenix Natural Gas internal development plan.



Average volume per domestic customer is currently approximately 500 therms per
annum for domestic customers and 11,000 therms per annum for industrial and
commercial customers.  The current average selling price of natural gas is
approximately #0.44 per therm (as at 30 September 2003).  The Directors
anticipate that this will increase going forward as a result of a more
favourable customer mix.  As at 3 November 2003, the average selling price for
new customers was approximately #0.53 per therm.



The supply of natural gas, as opposed to its conveyance, is operated by Phoenix
Natural Gas on a breakeven basis.



Financial information



In the year ended 31 December 2002, Phoenix Natural Gas made a profit before
taxation of #0.7 million (2001: #2.7 million loss) on turnover of #33.1 million
(2001: #24.9 million).  As at 31 December 2002, net assets were #150.6 million
(2001: #133.3 million).  Since 31 December 2002, the turnover of Phoenix Natural
Gas has increased in line with management expectations.  As set out in East
Surrey Holdings' unaudited interim results which have also been released today,
Phoenix Natural Gas' turnover was #13.0 million for the six months ended 30
September 2003 (2002: #11.6 million).  On 1 October 2003, Phoenix Natural Gas
increased its prices by 10.8 per cent. to reflect natural gas and transportation
cost increases.  Since 30 September 2003, an additional 1,500,000 redeemable
preference shares with a total value of #1,500,000 have been issued in Phoenix
Natural Gas.  As at 1 December 2003 there will be 164,464,966 redeemable
preference shares in issue.



Background to and reasons for the Acquisition



The acquisition of a 24.5 per cent. stake in Phoenix Natural Gas in March 2001
was a key element of the Board's strategy of operating and developing regulated
infrastructure businesses.  The Directors continue to believe that this strategy
is in the best interests of Shareholders.  This belief continues to be
strengthened by the significant regulatory challenges that water companies in
England and Wales have to face.  In the year ended 31 March 2003, total
regulated profits from the water subsidiary of East Surrey Holdings accounted
for approximately 80 per cent. of the Group's profit before taxation and
exceptional items (2002: 83 per cent.).



The Acquisition will allow East Surrey Holdings to participate fully in the
ongoing development of the natural gas infrastructure in the Greater Belfast
area.  The natural gas transportation business has many similarities to East
Surrey Holdings' water business.  However, the development and operation of new
natural gas infrastructure offers an opportunity for real growth and a
significantly higher potential rate of return than that which is available in
the regulated water industry.  The Phoenix Licence allows for Phoenix Natural
Gas to earn an 8.5 per cent. pre-tax real return per annum on its total
investment and, in addition, to recover that investment over the initial price
control period, being 20 years from September 1996.  By comparison, the
Competition Commission's price determination for Sutton and East Surrey Water in
2000 assumed a pre-tax real return of 7.3 per cent. per annum for the regulated
water business.



The Directors believe that there are good prospects for the market for natural
gas in the Greater Belfast area for the following reasons:



*         approximately 40 per cent. of the population of Northern Ireland live
in the Greater Belfast area;

*         the forecast requirement for a further 35,000 houses in the Phoenix
Licence area by 2016;

*         the current take-up of natural gas in new industrial, commercial and
domestic housing developments, where natural gas is available, of approximately
95 per cent. of such developments;

*         the Northern Ireland Housing Executive's stated policy for its rolling
refurbishment programme of installing natural gas fired heating where natural
gas is available; and

*         the scope for further penetration of the owner occupier market:
Phoenix Natural Gas has approximately 26,000 customers in this market, while the
network currently passes approximately 137,000 owner-occupied properties and is
anticipated to pass a total of 138,000 such properties by the end of 2003.



The licence area of Phoenix Natural Gas bears a number of similarities to that
of the Group's water company, Sutton and East Surrey Water, in terms of both
size and infrastructure.  For example, the numbers of properties and populations
are similar, as will be the mains networks once the natural gas network is fully
built out in the Greater Belfast area.



The Acquisition is expected to be earnings dilutive in the short term but it is
anticipated that it will become earnings enhancing in the longer term.  The
Directors believe that the strong future outlook for Phoenix Natural Gas,
together with the return criteria stipulated in the Phoenix Licence, will
contribute significantly to the Group's earnings potential in the longer term.
Following Completion, Phoenix Natural Gas will be accounted for as a
wholly-owned subsidiary of East Surrey Holdings.



References to the anticipated effect of the Acquisition on future earnings
should not be interpreted as a profit forecast.



Postalisation



DETI has recently indicated that the development of the natural gas industry in
Northern Ireland will require the "postalisation" of natural gas transmission
charges so that the charge for delivering natural gas will be the same to all
locations on the transmission pipeline network, in the same way that the cost of
a postage stamp is the same for delivery to any address covered by the postal
service.  DETI has indicated that postalisation of transmission charges is
scheduled to apply in Northern Ireland from 1 October 2004 and that this will
relate to the transportation of natural gas from Moffat in Scotland to exit
points in Northern Ireland at Ballylumford and Coolkeeragh power stations and
any distribution zones, of which the Phoenix distribution zone is currently the
only one.



Phoenix Natural Gas is in the process of agreeing the annual required revenue in
respect of its transmission asset with OFREG.  The Directors anticipate that
this annual required revenue will be higher than the revenue that Phoenix
Natural Gas is currently recovering for its transmission asset under the current
regime.  This increase in revenue will be offset by increased transportation
charges to Phoenix Natural Gas' supply business.  In the event that the
postalisation regime is implemented, the Directors anticipate Phoenix Natural
Gas will enjoy a cash flow timing benefit from 1 October 2004.



Dividends



Notwithstanding the likely short term earnings dilution arising from the
Acquisition, the Board intends to maintain East Surrey Holdings' stated dividend
policy of increasing dividends in line with inflation across the full financial
year and providing real increases when Phoenix Natural Gas becomes cash
generative.  The Board expects that the long term dividend stream to
Shareholders will benefit significantly from the Acquisition.



References to dividends and dividend policy should not be interpreted as a
dividend forecast or a profit forecast.




Principal terms and funding of the Acquisition



The total consideration for the remaining 75.5 per cent. of the issued share
capital of Phoenix Natural Gas that East Surrey Holdings does not already own is
approximately #177.8 million, payable in cash on Completion.



The consideration payable for the ordinary shares in the capital of Phoenix
Natural Gas totals #53,631,451.  East Surrey Holdings has also agreed to
subscribe for 124,171,049 preference shares in Phoenix Natural Gas to permit the
redemption of the preference shares registered at Completion in the names of
KeySpan and BG Energy Holdings, on a pound for pound basis.



The Directors propose to fund the Acquisition as to approximately #85.0 million
from the net proceeds of the Placing and Open Offer and the balance from
underwritten bank facilities provided by Barclays Bank PLC, including a new term
loan of #93 million.  It is anticipated that Completion will take place on 17
December 2003 following Shareholder approval, receipt of the net proceeds of the
Placing and Open Offer and Admission.



The investment will be made by East Surrey Energy Investments, which is a
wholly-owned subsidiary of East Surrey Holdings and which currently owns 24.5
per cent. of Phoenix Natural Gas.  East Surrey Holdings has guaranteed East
Surrey Energy Investments' future funding commitments to Phoenix Natural Gas.



The Acquisition is conditional upon, inter alia, Shareholder approval and
Admission.  Notice of an extraordinary general meeting of East Surrey Holdings,
to be held on 15 December 2003, has been included in the circular to be
despatched to shareholders later today, containing ordinary and special
resolutions, inter alia, to approve the Acquisition.



Current trading and prospects



East Surrey Holdings today issued its unaudited interim results for the six
months ended 30 September 2003 which contain details of recent trading of both
the Company and Phoenix Natural Gas.



Following the Acquisition, the Directors look forward to the future of the
Enlarged Group with confidence.  As stated in the interim results released
earlier today, the Directors expect that the Acquisition will contribute
significantly to the Group's earnings potential in the longer term.  Phoenix
Natural Gas continues to achieve its operating and growth targets, and the
Directors believe the prospects of a potential move to a regulatory asset value
based regulation regime and the introduction of postalisation of natural gas
conveyance charges in Northern Ireland next year will both be of benefit to the
Enlarged Group.  As regards the regulated water business, the Directors are
looking forward to continuing constructive discussions with OFWAT in relation to
the 2005/10 quinquennium.  As announced by the Company on 3 October 2003, Sutton
and East Surrey Water has agreed with OFWAT that adjustments to Sutton and East
Surrey Water's charges for 2004/05 should be carried forward and taken into
account in the calculation of prices for 2005/10.  The total impact of this
adjustment over the five year period 2005/10 will be #1.16 million (equivalent
to #0.23 million per annum) before tax in 2002/03 prices.



Management of the Enlarged Group



Following completion of the Acquisition, existing shareholder representatives
from BG Group and Keyspan will resign from the board of Phoenix Natural Gas.
Sir Gerry Loughran, a non-executive Director of East Surrey Holdings, will be
appointed non-executive Chairman of Phoenix Natural Gas.  The management team of
Phoenix Natural Gas will remain unchanged.



Peter Dixon, Chief Executive Officer of Phoenix Natural Gas, will join the Board
of East Surrey Holdings on Admission.  In addition, the appointment to the Board
of East Surrey Holdings of a new independent non-executive director with
appropriate experience, preferably in relation to Northern Ireland, is under
consideration.



As a result of the increased number of non-executive Directors of East Surrey
Holdings, the Board considers it necessary to seek shareholder approval to
increase the maximum aggregate remuneration payable to non-executive Directors
from #100,000 to #200,000.



New banking arrangements



In addition to the underwritten term bank facilities of #93 million to fund the
Acquisition, Barclays Bank PLC has provided an underwritten working capital and
capital expenditure facility of #32 million.



The Placing and Open Offer



The Placing and Open Offer of 34,858,430 New Ordinary Shares is being made by
Hawkpoint as agent for and on behalf of East Surrey Holdings.  Under the Open
Offer, Open Offer Shares are being offered to Qualifying Shareholders, up to the
maximum pro rata entitlement, at 300 pence per share, payable in full on
application on the following basis:


7 Open Offer Shares                     for every 10 Existing Ordinary Shares



held in the names of Qualifying Shareholders on the Record Date.  Qualifying
Shareholders may apply for any number of Open Offer Shares up to their maximum
entitlement as set out in the Application Form enclosed with the circular being
posted today to Shareholders.



Pursuant to the Placing and Open Offer Agreement, Collins Stewart has
conditionally agreed to place with institutional and other investors or, to the
extent that it fails to do so, itself subscribe for the New Ordinary Shares
(other than the Committed Shares) at the Issue Price, subject to and to the
extent that valid applications are not made by Qualifying Shareholders under the
Open Offer for such Open Offer Shares.  The Placing and Open Offer is, save in
respect of the Committed Shares, being fully underwritten by Collins Stewart.



Where appropriate, entitlements of Qualifying Shareholders will be rounded down
to the nearest whole number of New Ordinary Shares and any fractional
entitlements to Open Offer Shares that would otherwise have arisen will be
disregarded in calculating Qualifying Shareholders' pro rata entitlements.  Such
fractional entitlements will be aggregated and included within the Placing, with
the proceeds retained for the benefit of the Company.



The Open Offer Shares will be issued after the statutory pre-emption rights of
Shareholders under Sections 89 and 90 of the Act have been disapplied in
accordance with Section 95 of the Act.  The New Ordinary Shares will be issued
credited as fully paid, be identical to and rank pari passu in all respects with
the Existing Ordinary Shares.  With the exception of the interim dividend
declared today, for which only the Existing Ordinary Shares are eligible, the
New Ordinary Shares will be eligible in full for all dividends and other
distributions declared, made or paid on or after Admission in respect of the
issued ordinary share capital of the Company.



The Placing and Open Offer is conditional on the Placing and Open Offer
Agreement becoming or being declared unconditional in all respects and not being
terminated before 8.00am on 17 December 2003 (or such later time and/or date,
being not later than 8.00am on 31 December 2003, as Hawkpoint, Collins Stewart
and the Company may agree).



Directors' and other Shareholders' intentions



AXA, which has an interest in 19,559,008 Existing Ordinary Shares, equating to
approximately 39.3 per cent. of the issued ordinary share capital of the
Company, has indicated its intention to vote in favour of the Resolutions and
has also agreed a conditional sale of 13,263,237 Existing Ordinary Shares at the
Issue Price.  The sale is conditional on Admission.  Further, AXA has
irrevocably committed to apply for 4,407,039 New Ordinary Shares under the Open
Offer.



Ecofin and Utilico, who together hold 7,022,813 Existing Ordinary Shares,
representing 14.1 per cent. of the issued ordinary share capital of the Company,
have irrevocably undertaken to vote in favour of the Resolutions.  Ecofin has
also irrevocably undertaken to take-up entitlements to 1,774,500 New Ordinary
Shares under the Open Offer.  Utilico has irrevocably undertaken to take up, or
procure to be taken up, entitlements to 1,500,000 New Ordinary Shares under the
Open Offer.



The Directors have irrevocably undertaken to vote in favour of the Resolutions
and to take-up their entitlements in full under the Open Offer in respect of
their holdings of 215,909 Existing Ordinary Shares, representing approximately
0.4 per cent. of the issued ordinary share capital of the Company.



In aggregate, the Company has received irrevocable undertakings and indications
of support to vote in favour of the Resolutions in respect of 26,797,730
Existing Ordinary Shares, representing approximately 53.8 per cent., of the
issued ordinary share capital of the Company.



Furthermore, the Company has received irrevocable undertakings to take-up, or
procure to be taken up, entitlements to, in aggregate, 7,832,675 New Ordinary
Shares under the Open Offer, representing approximately 22.5 per cent. of the
total Open Offer Shares.



Circular to Shareholders



A circular setting out details of the Acquisition and the Placing and Open Offer
will be despatched to East Surrey Holdings' Shareholders today.  Application
Forms, which will be despatched to Qualifying Shareholders only, are personal
and may not be transferred except to satisfy bona fide market claims.



Extraordinary general meeting



An extraordinary general meeting of the Company is being convened to be held at
11.00am on 15 December 2003 at which resolutions will be proposed to:


*    increase East Surrey Holdings' authorised share capital from #21,465,000 to 
     #23,650,000 by the creation of an additional 43,700,000 Ordinary Shares and
     authorise the Directors pursuant to section 80 of the Act (in substitution 
     for their existing authority) to allot up to 63,077,159 Ordinary Shares;

*    disapply the statutory pre-emption rights of Shareholders in accordance 
     with section 95 of the Act in relation to up to 63,077,159 Ordinary Shares;

*    approve the Acquisition; and

*    increase the maximum aggregate remuneration payable to non-executive 
     Directors from #100,000 to #200,000.



The increase in the authorised share capital, authority to allot the additional
shares and disapplication of statutory pre-emption rights are conditional upon
the Placing and Open Offer Agreement becoming unconditional (save only for
Admission) and the resolution of Shareholders to approve the Acquisition being
passed.



Expected timetable of significant events                                                         2003


Record Date for the Open Offer                                       close of business on 17 November
Ex-entitlement date for the Open Offer                                                    21 November
Latest time and date for splitting of Application Forms (to                     3.00pm on 10 December
satisfy bona fide market claims)
Latest time and date for receipt of completed Application                       3.00pm on 12 December
Forms and payment in full under the Open Offer
Latest time and date for receipt of Forms of Proxy                             11.00am on 13 December
Extraordinary General Meeting                                                  11.00am on 15 December
Admission                                                                       8.00am on 17 December
Commencement of dealings in the New Ordinary Shares and                                   17 December
CREST stock accounts credited
Completion of Acquisition                                                                 17 December
Despatch of definitive share certificates for the New                                  by 24 December
Ordinary Shares



For further information contact:


East Surrey Holdings plc                                           01737 772000
Phil Holder, Managing Director
Nick Fisher, Finance Director


Phoenix Natural Gas plc                                           028 9055 5500
Peter Dixon


Hawkpoint Partners Limited                                        020 7665 4500
Paul Baines
Graham Paton


Collins Stewart Limited                                           020 7523 8350
Stephen Ford
Paul Compton
Stephen Roberts


City Profile                                                      020 7448 3244
Simon Courtenay



Web: www.eastsurreyholdings.com



The directors of East Surrey Holdings accept responsibility for the information
contained in this announcement.  To the best of the knowledge and belief of the
directors of East Surrey Holdings (who have taken all reasonable care to ensure
that such is the case), the information contained in this announcement is in
accordance with the facts and does not omit anything likely to affect the import
of such information.



Hawkpoint Partners Limited, which is authorised and regulated in the United
Kingdom by the Financial Services Authority, is acting exclusively for East
Surrey Holdings and no one else in connection with the Acquisition and the
Placing and Open Offer and will not be responsible to anyone other than East
Surrey Holdings for providing the protections afforded to its customers or for
providing advice in relation to the contents of this announcement or any
transaction or arrangement referred to herein.



Collins Stewart Limited, which is authorised and regulated in the United Kingdom
by the Financial Services Authority, is acting exclusively for East Surrey
Holdings and no one else in connection with the Acquisition and the Placing and
Open Offer and will not be responsible to anyone other than East Surrey Holdings
for providing the protections afforded to its customers or for providing advice
in relation to the contents of this announcement or any transaction or
arrangement referred to herein.



The New Ordinary Shares to be issued in connection with the acquisition and the
Placing and Open Offer have not been nor will they be registered under the
United States Securities Act of 1933 (as amended) or under the securities laws
of any state of the United States, any possession or territory of Canada, Japan,
Australia or the Republic of Ireland.




Definitions

The following definitions apply throughout this announcement, unless the context
requires otherwise:


"Acquisition"                        the proposed acquisition by East Surrey Energy Investments of the
                                     75.5 per cent. of the issued share capital of Phoenix Natural Gas
                                     that East Surrey Energy Investments does not already own

"Admission"                          admission of the New Ordinary Shares (i) to the Official List and
                                     (ii) to the London Stock Exchange's market for listed securities
                                     becoming effective in accordance, respectively, with the Listing
                                     Rules and the Admission and Disclosure Standards

"Application Form"                   the application form relating to the Open Offer being sent to
                                     Qualifying Shareholders

"AXA"                                AXA Investment Managers Limited

"BG Energy Holdings"                 BG Energy Holdings Limited, a wholly-owned subsidiary of BG Group plc

"Collins Stewart"                    Collins Stewart Limited

The "Company"                        East Surrey Holdings plc
or "East Surrey Holdings"

"Completion"                         completion of the Acquisition

"Committed Shares"                   7,832,675 New Ordinary shares which represent the entitlements (to
                                     apply to the Company for New Ordinary Shares under the Open Offer) of
                                     Utilico, Ecofin and the Directors who have provided irrevocable
                                     undertakings to the Company to take up such New Ordinary Shares under
                                     the Open Offer

"DETI"                               the Department of Enterprise, Trade and Investment in Northern
                                     Ireland, or, where the context so requires, its predecessor the
                                     Department of Economic Development

"Directors" or "Board"               the directors of East Surrey Holdings
the "Group"                          East Surrey Holdings and its subsidiaries and associated undertakings

"East Surrey Energy Investments"     East Surrey Energy Investments Limited, a wholly-owned subsidiary of
                                     East Surrey Holdings

"Enlarged Group"                     the Group as enlarged by the Acquisition

"Existing Ordinary Shares"           ordinary Shares in issue at the date of this announcement

"Hawkpoint"                          Hawkpoint Partners Limited

"Issue Price"                        300 pence per New Ordinary Share

"KeySpan"                            KeySpan CI Limited, a wholly-owned subsidiary of KeySpan Energy
                                     Corporation, a US company formed out of the Brooklyn Union Gas
                                     Company, Long Island Lighting Company and Boston-based Eastern
                                     Enterprises

"London Stock Exchange"              London Stock Exchange plc

"New Ordinary Shares"                34,858,430 new Ordinary Shares to be issued pursuant to the Placing
                                     and Open Offer

"Official List"                      the Official List of the UKLA

"OFREG"                              the Office for the Regulation of Electricity and Gas

"OFWAT"                              the Office of the Director General of Water Services

"Open Offer"                         the conditional invitation by Hawkpoint on behalf of the Company to
                                     Qualifying Shareholders to apply for New Ordinary Shares on the terms
                                     and conditions set out the circular and the Application Form to be
                                     despatched to Shareholders today

"Open Offer Shares"                  the New Ordinary Shares to be conditionally placed, subject to the
                                     right of Qualifying Shareholders to apply for such shares pursuant to
                                     the Open Offer

"Ordinary Shares"                    the ordinary shares of 5 pence each in the capital of the Company

"Phoenix Natural Gas"                Phoenix Natural Gas Limited

"Phoenix Licence"                    the combined natural gas supply and exclusive conveyance licence
                                     granted to Phoenix Natural Gas in 1996 by DETI and administered by
                                     OFREG

"Placing"                            the conditional placing of the Open Offer Shares at the  Issue Price,
                                     subject to the right of Qualifying Shareholders to apply for such
                                     shares pursuant to the Open Offer

"Placing and Open Offer Agreement"   the conditional agreement dated 21 November 2003 between East Surrey
                                     Holdings, Hawkpoint and Collins Stewart, details of which are set out
                                     in the circular to be despatched to Shareholders today

"Qualifying Shareholders"            Shareholders (other than certain overseas Shareholders) on the
                                     register of members of the Company at the Record Date

"Record Date"                        the close of business on 17 November 2003

"Shareholders"                       holders of Ordinary Shares

"Sutton and East Surrey Water"       Sutton and East Surrey Water plc

"UKLA"                               the Financial Services Authority acting in its capacity as the
                                     competent authority for the purposes of Part VI of the Financial
                                     Services and Markets Act 2000




                      This information is provided by RNS
            The company news service from the London Stock Exchange
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