GfK Mulls Cash Bid for TNS After WPP Swoop

Germany's GfK Holdings is considering a cash offer for Britain's Taylor Nelson Sofres after Martin Sorrell's advertising group WPP muscled in on their original merger plan.

WPP Group, the world's second-largest advertising company, made a hostile 1.08 billion pound ($2.13 billion) bid for market research group TNS earlier on Wednesday, after its previous proposals were rejected.

TNS, which is the world's third-biggest market research company with clients such as Procter & Gamble, again advised its shareholders to ignore the WPP bid.

It noted that GfK was in discussions with an "identified potential source of equity".

TNS and GfK had been previously working on a merger of equals but GfK said it had now received a strong indication of interest in the cash proposal.

"The form of consideration being considered is all cash, although the formal right to vary this is reserved," it said in a statement.

TNS shares rose 10.7 percent to 274.5 pence on Wednesday. WPP closed 1.2 percent higher at 469.5 pence.

WPP is offering 173 pence in cash and 0.1889 of a new WPP share which, based on Tuesday's closing WPP price of 464p, values each TNS share at 260.60 pence.

Analysts had expected some TNS shareholders to be tempted by WPP's offer, which has a high cash component at a time of economic and stock market uncertainty, but also say WPP could return with a higher bid -- between 280p and 300p.

"Presumably GfK would not offer a premium to the WPP given the suggested 'all-cash' basis," analysts at Kaupthing said in a note to clients before the GfK statement.

"Whether a bidding war (GFK counter and then WPP counter) is generated from this situation is difficult to guess at this stage given macro backdrop." 

Buying Time

TNS and GfK had previously said a merger would result in the world's second-biggest market research company with a market value of about $4 billion and expertise in the consumer, technology, media and healthcare sectors.

A combined group would also have good coverage in faster-growing markets of Asia, Latin America and eastern Europe.

Morgan Stanley said in a note to clients before the GfK announcement that WPP was buying itself time with its bid.

"It will likely come back with a higher bid," it said.

The WPP offer represented a premium of 52 percent to where TNS shares stood before news of its planned merger with GfK in late April.

WPP Chief Executive Sorrell wants to combine TNS with WPP's Kantar market research business to create the world's second-largest research, information and consultancy group in a market that has grown at around 5 percent in recent years.

Winning TNS would diversify WPP's revenue stream, leaving it better placed to weather any global economic downturn.

"We believe that the offer for TNS generates value for WPP share owners and offers TNS share owners both cash certainty and equity upside," Sorrell said in a statement, adding that WPP had waived its earlier pre-condition for TNS to recommend the offer.

"Although our offer may be characterized by some as a 'hostile bid', we believe that it is in no way hostile to TNS share owners nor to TNS's clients and people," Sorrell added.

TNS rejected three earlier proposals from WPP, at 230 pence, 242 pence and then 260 pence last week, saying all three offers substantially undervalued the company.

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