TNS rejects WPP again after GfK drops takeover bid

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TNS, which reported strong first-half results and gave a confident full-year outlook, said the offer from advertising group WPP undervalued the company and said it would recommend again that shareholders reject the cash-and-shares bid.

"I believe that WPP is being opportunistic at a time in the market when the market is low," Chief Executive David Lowden told reporters on a conference call, adding that TNS was seeking alternative buyers but could equally well thrive alone.

He said he would consider 325 pence and upwards to be a fair price per share, based on historic multiples paid for peers - far higher than WPP's offer worth 268.7 pence per share and TNS's share price of 264 pence by 9:55 a.m., down 1.8 percent.

GfK, which had spent months trying to find finance to fund an all-cash bid for TNS after WPP's bid scuppered its original agreed merger plans, said it had not found suitable terms.

"The terms of the financing available did not enable a sufficiently compelling alternative cash offer to be made for TNS that was also economically in the best interests of the GfK shareholders," the German firm said in a statement.

WPP, whose chief executive has publicly doubted GfK's ability to raise finance for a TNS bid, said: "We are glad that GfK has clarified its position at last."

A combination of TNS and WPP's Kantar division would create the world's second-biggest market-research group and a more formidable rival to privately held Nielsen - a goal that would also have been achieved by a TNS-GfK merger.

Market research is far less vulnerable to the cyclical weakness now hurting many advertising companies, as customers hurt by a weak economy rein in marketing budgets but seek to target better what they do spend.

Lowden said it was now up to WPP to come up with an unconditional offer - its current offer depends on anti-trust approval and on winning 90 percent of TNS shares. He would expect such an offer by end-September, he said.

CONFIDENCE

TNS shares have leapt 57 percent since it became a takeover target in late April and are now trading around the WPP offer level, but Lowden said a higher price was justified by TNS's strong performance and prospects.

Recent deals in the sector had valued acquired companies at 12.5-14.5 times earnings before interest, tax, depreciation and amortisation, Lowden said, compared with WPP's offer, which he said was worth about 11.5 times TNS's EBITDA.

Numis, commenting that TNS's results were slightly ahead of its estimates, said it considered the WPP bid "a fair offer in light of the challenging economic and financial outlook".

For the first half of the year, TNS reported underlying revenue growth of 5.1 percent to 567 million pounds and said its order book gave it confidence in its full-year target to increase underlying sales by about 6 percent.

Adjusted operating profit, excluding restructuring costs and amortisation of acquired intangible assets, grew 19.6 percent to 54.3 million pounds in the period, and TNS increased its interim dividend by 25 percent to 2 pence per share.

TNS said it had seen growth in all regions of the world, particularly in Germany, Spain and Russia and including the United States, despite a "more challenging marketplace" there.

The company, which is a market leader in customised information and analysis, said it had won new business from customers including Danone, Telefonica and LG in recent weeks.

TNS trades at 14.4 times expected 2009 earnings, a substantial premium to the European advertising sector average of 10.9, according to Reuters Estimates.

(Additional reporting by Peter Dinkloh in Frankfurt)

(Editing by David Cowell)