When deals go bad: China state firm managers spooked by new liability rules
HONG KONG Business development managers at Chinese state-owned firms have been put on notice: mess up on M&A deals and you can be held personally liable - for life.
LONDON Britain's Taylor Nelson Sofres and Germany's GfK have agreed a merger of equals to create the world's second-biggest market research company with a market value of about $4 billion.
The tie-up steps up pressure on market leader AC Nielsen in an industry which has become increasingly important as companies hunt for more information on their clients and services.
But analysts believe the deal could yet be disrupted.
TNS rejected a $2 billion takeover proposal from Martin Sorrell's WPP last month and many expect the advertising and marketing group to return with a higher offer.
"While we believe there is good commercial logic in combining these businesses, we also expect WPP to return," Numis said in a note.
ABN Amro said it thought WPP could offer up to 285 pence per share, while UBS said it could offer around 300 pence for TNS, which it would then combine with its Kantar unit.
TNS is the world's third-biggest market research company, with clients such as Procter & Gamble and Unilever, while GfK is the world's fifth-biggest and counts Panasonic and Henkel among its customers.
Under the proposals announced on Tuesday, TNS would offer 11.74 new TNS shares for each Gfk share. Assuming full acceptance of the offer by GfK investors, both sets of shareholders would own 50 percent of the combined business, to be called GfK-TNS.
"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," TNS Chief Executive David Lowden told reporters.
WPP last month proposed a cash and shares offer for TNS worth 241-1/2 pence at that time. That proposal is now worth about 236-1/2p.
WPP declined to comment on the TNS and GfK statement.
At 0930 GMT, GfK shares were up 6.5 percent at 29.5 euros.
Because TNS shares have jumped 40 percent since late April the value of the 50-50 merger, which was first outlined in April, has risen for GfK shareholders. TNS shares were up 0.5 percent at 257.25 pence.
GfK's Finance Director Christian Weller von Ahlefeld said the majority of GfK's shareholders supported the deal and Lowden said he would now present the case to TNS shareholders and hoped they would agree.
"Our clients need more information, they need it faster and they need it from all corners of the world and delivered in an efficient way," Ahlefeld said on a conference call.
"The timing is right for this kind of deal. Our industry is very dynamic. We want to continue to stay ahead of the market and the changes brought about by globalization, digital information and more diverse consumer behavior."
TNS and GfK said they expected annual pretax benefits from their merger to be at least 76 million pounds ($149 million) by the end of the third full year following completion of the deal, at a one-off cost of around 94 million pounds.
They expect the deal to boost earnings, before goodwill and restructuring costs, from the first full year and for it to close during the last quarter of 2008.
GfK Chairman Hajo Riesenbeck will be chairman of GfK-TNS, while Lowden and Ahlefeld will continue in their roles at the combined company.
GfK-TNS will have its primary stock listing in London, with a secondary listing in Frankfurt. Its "global head office" will be in London, but there will also be a "central head office" in Nurnberg, Germany.
UBS estimated the deal should boost GfK-TNS earnings by 5-6 percent in 2009 and by 25-30 percent in the longer term, and said that based on a similar level of cost savings WPP could offer 300 pence a share for TNS without denting earnings.
In 2007, GfK-TNS would have had combined revenues of 1.9 billion pounds, adjusted earnings before tax, depreciation and amortization of 265.8 million pounds and an adjusted operating margin of 11.7 percent. The two firms said they aimed to have an operating margin of over 15 percent in the medium term.
(Additional reporting by Dan Lalor; Editing by Louise Ireland and Sue Thomas)
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