---

LucasVarity and VDO Sign Letter of Intent

15 October 1998

LucasVarity and VDO Sign Letter of Intent

    LONDON, Oct. 15 -- LucasVarity plc and Mannesmann VDO AG
today announced that they have signed a Letter of Intent outlining the terms
by which VDO expects to acquire the controlling interest in Lucas Kienzle
Instruments Limited, subject to final agreement and approvals.
    Currently LucasVarity owns 60% of Lucas Kienzle, with Mannesmann VDO of
Germany holding 40%.  Under the terms of the Letter of Intent, LucasVarity has
agreed to sell 11% of the share capital to VDO for an undisclosed
consideration.
    In parallel with this change of shareholding, VDO's existing aftermarket
business, VDO Trading (UK), based in Birmingham UK, will be merged with Lucas
Kienzle to create a single aftermarket business for VDO in the UK, to be
called VDO Kienzle UK Limited.
    LucasVarity will initially retain 49% of the new enlarged business with
VDO increasing its shareholding from 51% to 100% over the next four years.
    VDO Kienzle UK Limited will be based at the former Lucas Kienzle head
office at Gravelly Industrial Park, Birmingham UK, with 140 employees and
annual sales of around 20 million pounds.
    Commenting on the sale of LucasVarity's shareholding and the merger of VDO
Trading (UK) with Lucas Kienzle to form VDO Kienzle UK Limited, John Plant,
President of LucasVarity Automotive said, "Lucas Kienzle has been a highly
successful joint venture partnership for nearly thirty years operating as the
UK distributor of VDO products such as tachographs, engine control and fleet
management systems.  These products, however, are no longer a core activity
for LucasVarity.  Moreover, forthcoming EU legislation will introduce new
digital tachographs utilising smart card technology.  VDO has invested heavily
to develop this technology and by integrating Lucas Kienzle into VDO's
organisation the long term prospects for the business, its employees and its
customers will be best served."
    Dr. Peter Grafoner, Chairman and CEO of Mannesmann VDO AG welcomed the
agreement commenting, "Lucas Kienzle is an outstanding business which, when
combined with VDO Trading (UK), will form the VDO presence for its Trading
operations in the UK."
    It is anticipated that legal agreements will be finalised by the end of
1998, with the newly enlarged VDO Kienzle UK Limited operational in early 1999
under the leadership of Nick Rendell, currently General Manager of Lucas
Kienzle.
    LucasVarity designs, manufactures and supplies advanced technology
systems, products and services in the world's automotive and aerospace
industries.