Taylor Nelson Sofres and GfK agree on £2bn merger of equals

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The Independent Online

Taylor Nelson Sofres (TNS), the market research group, and Germany's GfK have agreed the details of a merger of equals to create a £2bn behemoth that would be the second largest company in the sector.

But WPP, the global advertising giant, still has the option of tabling another TNS takeover bid, despite having two earlier cash and share offers rejected. WPP's plan is to merge TNS with its Kantar unit as part of a strategy to diversify the group's activities from its core advertising base. But TNS has ducked the unsolicited approaches, including last month's 241.5p-per-share offer valuing the company at around $2bn (£1bn).

The plans published by TNS and GfK yesterday propose 11.74 new TNS shares for each GfK share. If the tie-up gets the go-ahead, both companies' shareholders would own 50 per cent of the business. The group's combined revenues are predicted to be £1.9bn, with savings estimated at £76m annually after three years and a one-off cost of £94m. David Lowden, the TNS chief executive, said: "Based on what was placed before us from WPP, it is quite evident that the combination of GfK and TNS is a far stronger option for our shareholders."

While analysts acknowledge the commercial logic in combining the businesses, there is some scepticism in the City over the details. The combined group anticipates margins as high as 15 per cent, and although headcount reductions are likely to be around 500 from GfK-TNS's 24,000 global staff, the group will retain three headquarters – two in Nürnberg and one in London. Andrew Walsh, an analyst at Landsbanki, said: "This is a fairly cautious statement. The savings – which represent 4 per cent of combined sales – don't really kick in until year three; there is no mention of staff cost savings; the synergy opportunity is restrained and there will be two quasi head offices. There is little to get excited about with reference to recent share price gains and we reiterate our 'Hold' recommendation."

The weak point with a merger of equals is that it is scuppered by a takeover bid offering a premium with a defined value, such as that proposed by WPP.

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