A tiger on TNS’ tail prepares to pounce

Stuart%20Smith%20120x120Sir Martin Sorrell, WPP chief executive, is so incensed at his subsidiary AGBNielsen losing the lucrative BARB UK TV measurement contract that he has decided to get his own back by buying the company that stole it from him.

Such, at least, may be the jest in the Taylor Nelson Sofres boardroom as its directors ponder a highly unwelcome WPP offer for the world’s largest independent market research company.

It is, in truth, no jesting matter. Sorrell is a dangerous adversary who has never lost a hostile takeover bid in over 20 years.

But we haven’t got to the hostile stage yet. At the moment, it’s more a question of wooing: seducing shareholders with the most persuasive arguments for this or that troth. The one reliable outcome will be an alliance of one kind or another for TNS.

So what is the justification underpinning it? A key one is the idea of globalisation and its twin concomitants, critical mass and juicy cost reductions. As a matter of fact, this is only partly convincing as a rationale. The rapid evolution of “online” boutique businesses such as YouGov and Toluna has shown the market research monoliths are not getting it all their own way. Never mind though: it’s an argument which plays well with the City analysts who help to mould investors’ opinions.

TNS has already attempted to deploy this logic in its proposed reversed merger with Nuremberg-based GfK. Unfortunately, due to a hasty and somewhat botched public announcement last week, some of the benefits have been lost in the fine print. Certainly the message has come across that GfK-TNS will be the world’s second largest research business, but the accompanying cost reductions – now thought to be about £80m – were slow to recommend themselves. The least effect of Sorrell’s counter bid will be to put the GfK option under more rigorous scrutiny.

And here it could be found wanting. Both GfK and TNS are highly reputable companies, but their combination may be less than the sum of their parts. They are heavily focused on the mature and slow-growing Western European market, and correspondingly fairly underpowered in faster-paced emerging markets.

From that point of view Kantar, the research arm of WPP, looks a more complementary fit. WPP is strong in emerging markets and about one-third of its revenue comes from what it calls “measurable businesses” (digital as well as research). TNS may have to work hard to dispel the idea that the GfK deal really is superior, and not merely a cosy defensive alliance of greater benefit to its executives than its shareholders.

Then again, there is the money to consider. A 35% bid premium on the pre-GfK price – what Sorrell is offering – is not as generous as it at first sounds; but he can always come back with a better package.

And it is not only Sorrell that TNS has to worry about. Other bidders may be flushed out – such as Nielsen, the world’s largest research group. There’s even Aegis, which might see the acquisition of TNS as a means of diluting Vincent Bolloré’s “baneful” influence over the company.

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