Instead of GfK, the TNS group can now be bought by the WPP holding

The merger of the German GfK Group and the British TNS, one of the world's five largest research companies, is cancelled. The Germans were unable to find investors who agreed to finance the deal. Experts predict that TNS will now become part of the communications holding WPP, which has already initiated a hostile takeover of the company, valuing it at $1.98 billion. In Russia, WPP and TNS compete directly, and it will not be easy for them to combine assets.

GfK refuses to merge with TNS, the German group said in an official statement yesterday. The world's fifth- and third-largest research companies agreed to merge in June. It was planned that this would be a “merger of equals” (see Kommersant of June 4). Following the announcement of the deal, a competing proposal was made by British communications holding WPP, whose Kantar Group division is the world's fourth-largest research group. Offers to TNS management made by WPP were rejected. In August, WPP launched a hostile takeover of TNS by approaching its shareholders directly and offering them 264.2 pence per share. The entire company was valued at £1.08 billion ($1.98 billion). The WPP offer is valid until August 29th.

In response, GfK was ready to make a new offer to TNS, taking into account the premium for the shares of the British company. But yesterday GfK admitted it had been unable to reach an agreement with investors that would satisfy both TNS and its own shareholders. According to the German magazine Managermagazine, the main reason is the failure in negotiations with the Apax investment fund, which was supposed to help finance the deal. He insisted on control over the merged company, which did not suit the researchers.

Following GfK's refusal, TNS yesterday once again confirmed its reluctance to become part of WPP. The group's board said it continues to recommend shareholders reject WPP's offer as undervaluing the company. In a letter to employees, TNS CEO David Louden noted that the company could either consider offers from other buyers or continue to operate independently.

British TNS is represented in 80 countries around the world. Revenue in 2007 - £1.06 billion ($2.12 billion), operating profit - £102 million ($204 million). Present in Russia since 2001. The declared turnover of the Russian office in 2007 was $43 million.

WPP will be able to carry out a hostile takeover of TNS, predicts Landsbanki analyst Conor O'shea. If the deal goes through, the combined company will become the world's second largest marketing researcher after the Dutch-American Nielsen.

In Russia, Kantar Group is represented by two research companies: COMCON (licensee of the Research International and BMRB networks) and ARMI-Marketing (Millward Brown network). Experts estimate COMCON's turnover in 2007 at $20-22 million, ARMI-Marketing at $15-17 million. That is, Kantar Group's share in the Russian market for marketing research, whose volume last year reached $260 million, is approximately 15%. The share of TNS Russia is 17%, GfK-Rus is 9%. If at the global level WPP does absorb TNS, in Russia the combined company will be larger than what would have appeared with the merger of TNS and GfK.

The Russian offices of TNS and GfK could complement each other in types of research, and COMCON and ARMI-Marketing directly compete with TNS. Thus, both COMCON and TNS measure the audience of metropolitan radio stations and study consumer preferences within the framework of the TGI and M`Index projects, respectively. ARMI-Marketing and the Marketing Information Center, part of the TNS Russia group, test and measure the effectiveness of advertising. “If the takeover takes place, COMCON may in a few years give up radio measurements in exchange for TNS refusing M`Index,” predicts COMCON CEO Elena Koneva.

Ekaterina Kommersant-Dudareva, Sergey Kommersant-Sobolev

The researchers did not agree on the merger