The battle for TNS is hotting up: WPP has made a hostile £1.1bn bid for the company; the plans for a TNS-GfK merger have been pulled; and GfK is trying to put together private equity funding for an all-cash offer instead.
Before the Takeover Panel's "put up or shut up" deadline expired yesterday morning, the WPP board tabled a formal offer for the market research group, in line with last week's approach at 0.1889 WPP shares and 173p cash per TNS share. The proposal values TNS shares at 261.7p at last night's closing prices, or £1.1bn in total.
The advertising giant, led by Sir Martin Sorrell, has been talking to TNS shareholders since the informal approach was made last week and among the conditions disposed of in yesterday's offer is the need for the agreement of the TNS board.
Sir Martin said: "Reluctantly, we have waived our earlier pre-condition for the board of TNS to recommend our offer. Despite repeated efforts over more than three months to engage with TNS management, we have been unable to enter into any discussions that could lead to an agreement.
"Although our offer may be characterised 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," he said. "We believe that the offer for TNS generates value for WPP share owners and offers TNS share owners both cash certainty and equity upside."
Unsurprisingly, given last week's rebuttal, the TNS board was unconvinced. It swiftly condemned the offer, again, as substantially undervaluing the company, and recommended that shareholders reject it.
TNS and GfK, the German group with which it was in advanced merger talks, then dissolved their plans for a nil-premium all-share merger, including setting aside the £10m break fee. GfK promptly confirmed it is pursuing an alternative all-cash offer with the involvement of third-party financing.
The backer is thought to be a German family, rather than a conventional private equity house, and GfK said yesterday it hopes for a deal within the next two weeks.
Sir Martin quickly stepped into the breach, describing the GfK statement's lack of detail as "flakey" and the whole process of the merger as "verging on farce". Last week WPP called for clarity about the legal role of the GfK Verein—the non-profit group of local politicians, unions and management that owns 57 per cent of GfK—and it has repeatedly complained that TNS has not provided it with the same information as it has to its merger-partner. It is believed that WPP advisers yesterday took the matter to the Takeover Panel to ensure that, now GfK is a potential offeror, all details given to the German company are made available to WPP.
With the TNS/GfK merger off the table, the timetable for a resolution of the situation has lengthened. But the market is positive and TNS shares closed up 11 per cent at 274.5p on the hope of a bidding war.
Donald Brydon, the chairman of TNS, said: "There is only one winner out of all this and that is our shareholders."
City speculation now focuses on the value of any GfK bid—with unsubstantiated rumours pushing it as high as 280p a share— and how Sir Martin will respond. "A 280p offer would be a knockout price, but WPP has made a fair offer so we are not in the end game yet," said Richard Hitchcock, an analyst at Numis. "In this environment, the more cash in the bid the stronger the bidder's hand will be. It is not just about the overall level of the bid—a bid at the same level with more cash might have more success."
But Sir Martin is unlikely to give up easily. Andrew Walsh, at Landsbanki, said. "Whether any extra information will persuade WPP to do anything, including lift its offer, remains to be seen. But Martin Sorrell is a seasoned M&A executive and he is likely to keep something in reserve."
In a final bizarre twist, Hering Schuppener, the German public relations firm handling the situation for GfK, is part of GCI Group, which is owned by WPP.
The advertising group's shares closed up 1.19 per cent at 469.5p.