(Recasts lede, adds analyst comment, details.) By Monica Mark Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- U.K. market research company Taylor Nelson Sofres PLC (LSE:TNS) ( TNS.LN) and German rival GfK AG (XETRA:GFK) (GFK.XE) Tuesday agreed a GBP4 billion "merger of equals" that would create the world's second-largest market research group by revenue behind AC Nielsen Corp.
The new merged entity, to be named GfK-TNS, would have had combined 2007 revenue of EUR2.7 billion.
But analysts weren't ruling out further moves by WPP Group PLC (NASDAQ-NMS:WPPGY) (WPPGY) for Taylor Nelson Sofres (LSE:TNS) , after TNS rejected an improved GBP949 million pre- conditional offer from Martin Sorrell's advertising communications group in early May.
That offer, of 154 pence in cash and 0.1214 WPP shares for each TNS share, valued TNS at 241.5 pence a share at the time.
Lehman said in a trading note WPP could pay up to 280 pence, assuming GBP80 million of synergies, before the deal became "value destructive." Meanwhile, Numis analysts said that despite the commercial logic in the GfK-TNS merger, they would expect WPP "to return with an improvement on its last offer for TNS in light of the announcement of merger terms."
One analyst, however, said he would not expect WPP to be successful considering 28% of GfK is owned by a trust.
WPP declined to comment on whether it would increase its offer for TNS, or if it remained interested in the combined GfK-TNS.
The terms of the agreement between GfK and TNS include the issue of 11.74 new TNS shares for each GfK share, and allow GfK to appoint one non-executive director to the board of directors so long as GfKretain a 15% stake.
"If you look at the shape of the board it looks fairly well split," said Landsbanki analyst Andrew Walsh. But he said "there have been certain concessions given to GfK shareholders."
Under the agreement, GfK CEO Klaus Wubbenhorst will join the board as a non- executive director and as a representative of GfK-Nürnberg e.V., GfK-TNS' largest shareholder, following completion of the merger. The merger would be effected by the exchange of 11.74 new TNS shares for each GfK share, subject to shareholder approval.
Under the agreement, annual pre-tax benefits through cost reduction are expected to be at least EUR97 million (GBP76 million) by the end of the third full year following completion, with one-off costs of around EUR120 million ( GBP94 million).
"The figure of EUR100 million seems about right, but they don't get there until the end of three years. You would expect them to hold things back, but the time scale looks a bit cautious," Walsh said.
GfK Finance Director Christian Weller von Ahlefeld said the figures showed the merger was "above all, about growth." The deal would allow the companies to cut production costs in areas such as data collection, while leveraging on others, such as GfK's experience in outsourcing, to recoup revenue growth, he said.
"A combined GfK-TNS is a wonderful opportunity and now is the right time to bring our businesses together," he said.
TNS Chief Executive David Lowden said the merger would enable the new group to extend coverage across 111 countries. GfK currently has a strong presence in Central and Eastern Europe, while TNS dominates in Asia.
"The new business we are creating will be a global leader in the market information industry," he said. "We believe that this merger will also create substantial value for both sets of shareholders."
TNS shareholders and GfK shareholders will each hold approximately 50% of the share capital of GfK-TNS following completion of the merger, currently expected to be during the last quarter of 2008.
The companies' separate clients include British Airways PLC (LSE:BAY) (BAY.LN), Procter & Gamble Co. (NYSE:PG) (PG) and Unilever NV (NYSE:UN) (UN), Panasonic and Henkel AG & Co. (HEN.XE).
"There are new opportunities but I'm not convinced the added scale means they will achieve what they were both trying to do as individual companies," cautioned Landsbanki's Walsh.
The companies said Tuesday they have hired five banks- Barclays Capital, Dresdner Kleinwort, Royal Bank of Scotland PLC (RBS), Societe Generale (SCGLY) and (UNCFF) - to arrange EUR1.1 billion in credit facilities to refinance their existing debt.
At 1513 GMT, TNS shares were trading up 1.17% at 259 pence in London, amid a slightly higher overall market. At the same time, GfK shares were up 6.9% at EUR29.59.
-By Monica Mark, Dow Jones Newswires; + 44 207 842 9293; monica.mark@ dowjones.com.
(Erica Herrero-martinez in London contributed to this article.)
(END) Dow Jones Newswires 06-03-08 1135 Copyright (c) 2008 Dow Jones & Company, Inc.
