Directors at Gullane Entertainment have recommended a £130m ($200m) takeover by its rival Hit Entertainment.

Thomas the Tank Engine... fits perfectly with our own strong children's brands

Rob Lawes

Hit already owns the children's characters Barney the Dinosaur and Pingu the Penguin, as well as Bob.

The company said the new group would be "one of the leading independent young children's studios in the world."

Gullane chairman Adam Mills said that after reviewing its alternatives the board decided the deal with hit was in shareholders' best interests.

Other bidders

Last month Hit increased its offer for Gullane, whose other characters include Sooty and Captain Pugwash.

At the time Gullane said it had also bee in talks with other potential bidders, thought to include Carlton Communications.

But Hit said its cash and shares offer had the backing of investors owning more than half of Gullane shares.

At the time Hit chief executive Rob Lawes said: "Thomas the Tank Engine is a premier, world-class brand and fits perfectly with our own strong children's brands."

Based on Thursday¿s closing prices, Hit's offer was worth 425 pence for each Gullane share - which was the exact price of Gullane shares a the close.