GfK and TNS Announce Merger Terms

GfK and TNS have agreed the terms for their 'merger of equals' to create GfK-TNS plc. Aside from 'significant opportunities' for revenue growth, the firms say the move will bring annual pre-tax benefits through cost reduction of at least Euros 97m (£76m) by the end of the third full year following completion.

The Merger is currently expected to complete during the last quarter of 2008. Related non-recurring costs to achieve the above reductions are expected to be around EUR 120m (£94m).

GfK-TNS will have operations in 111 countries, a global head office in London, and a German head office plus 'a central head office function' and 'significant business operations' in Nürnberg. The two firms say the new group will be 'better positioned to meet client needs in an increasingly global and digital environment'. GfK-TNS will have its primary listing in London, with trading on the London Stock Exchange's main market for listed securities, and a secondary listing on the Frankfurt Stock Exchange.

In 2007, the Enlarged Group would have had combined revenues of EUR 2.7 billion (£1.9 billion), adjusted EBITDA of EUR 388.5m (£265.8m) and Adjusted Operating Income of EUR 319.1m (£218.4m). On a combined basis, the Adjusted Operating Margin would have been 11.7% - the two Boards have declared the objective of 'reaching an Adjusted Operating Margin for the enlarged group in the medium term of beyond 15%'.

The merger, which is subject to shareholder approval and other conditions, will be effected by way of a public exchange offer by TNS for GfK, for a consideration of 11.74 New TNS Shares issued for each GfK Share to the GfK Shareholders who accept the Offer. Assuming full acceptance of the Offer, the two groups of shareholders will each hold approximately 50 per cent of the share capital of the merged company on completion.

GfK-Nürnberg e.V., currently GfK's largest shareholder with 56.8% of existing issued share capital, has given an 'irrevocable' undertaking to approve the merger, subject to conditions including the approval of its Advisory Board and Members. On completion, this group would hold c.28.7% of shares in the merged company, and it would retain the right to appoint one non-executive director to the board as long as it owns or controls at least 15%. Its initial appointee to the GfK-TNS Board will be current GfK chief Prof. Dr. Klaus Wübbenhorst.

Prof. Wübbenhorst today said the combination was 'a wonderful opportunity' and the time was right. 'The two companies are a perfect fit and have a long and successful track record of working together. The new group will enable us to benefit from the dynamics of a fast-changing and growing market. I believe this combination is in the best interests of clients, employees and shareholders and I look forward to us working together.' TNS CEO David Lowden says the two are 'ideal partners' and that in addition to benefits for clients the merger will bring 'new opportunities to employees in an enlarged group'.

The firms now say that the Board of the merged company will be chaired by GfK Exec Hajo Riesenbeck, while TNS's Donald Brydon will take the title of Senior Independent Director - a fact some analysts are citing as evidence that GfK will take effective control in the new set-up. Others are suggesting that the substantial hike in the TNS share price since the initial announcement of talks - it has risen from 170p a share to around 259p today, with WPP's offers helping to fuel interest - will bias the 'merger of equals' in the other direction. As of today (Tuesday) TNS is capitalised at just over £1bn - GfK, despite a rise in share price today, is valued at around £785m.

Some commentators feel a further offer for TNS from WPP - which has made no statement today - to be very likely in the near future, and have suggested its CEO Martin Sorrell could bid as high as 300p.

The firms have reportedly agreed that if one of them withdraws from the merger, a 'breakup fee' of £10.6m will be paid. They have also announced the hiring of five banks to arrange a credit facility of EUR1.1bn to refinance their existing debt and for other purposes. The five are Barclays Capital, Dresdner Kleinwort, RBS, Societe Generale and Unicredit SpA.

On the issue of job cuts, raised by Sorrell two weeks ago. Lowden said today that these would be 'relatively small'. The combined company will have about 24,000 employees worldwide, and Lowden said the 'overlap' - ie where functions are duplicated and redundancies indicated - was relatively small when compared with the general growth expected in this workforce. Employees in 'overlapping' areas could be moved to new positions rather than recruiting from outside the company.

The firms' home pages are at www.tnsglobal.com and www.gfk.com . TNS has set up a web site for the publication of documents and information in connection with the proposed merger, at www.gfktns-merger.com .

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.