M&A

10 November, 2009

UPDATE 3-Mill Road trumps Cosmos on Cossette bid; shrs soar

* Cossette spurns C$5.25 a share bid from Cosmos Capital

* Says Mill Road offer worth C$7.87 a share in cash

* Cossette shares surge 33 percent to C$7.78 on TSX (Adds analyst comments, updates share price move)

By Euan Rocha

TORONTO, Nov 10 (Reuters) - Cossette Inc (KOS.TO), Canada's largest homegrown advertising agency, said on Tuesday it will sell itself to private equity firm Mill Road Capital, spurning a lower bid from Cosmos Capital and sending its shares up 33 percent.

Mill Road will acquire all of Cossette's issued and outstanding subordinate voting shares for C$7.87 each in cash -- a 50 percent premium to Cosmos Capital's current offer.

Following a conversion of its multiple voting shares to subordinate voting shares in October, Cossette shares outstanding rose to 16.7 million, from about 12.4 million. Based on the new share structure the Mill Road offer would be worth about C$131.5 million ($125.2 million).

Cossette shares were up C$1.93 at C$7.78 on the Toronto Stock Exchange on Tuesday afternoon.

Cossette said the Mill Road deal is not conditional on financing or due diligence.

Last month, Cossette urged shareholders not to tender to a sweetened bid from North American private equity group Cosmos Capital worth C$5.25 a share. [ID:nN29102296]

Cossette's board unanimously approved the Mill Road offer and has agreed to not actively solicit competing proposals. However, the board retains the ability to consider any rival offers.

National Bank Financial analyst Adam Shine said he does not expect Cossette to attract a higher bid.

"This appears to be a very full and more than fair offer for Cossette whose struggles as a public company became more acute over the past two years in the face of lost mandates and recessionary pressures," said Shine, in a note to clients.

The advertising agency's clients include McDonald's Restaurants of Canada, Bell Canada, General Motors of Canada and Coca-Cola.

The company had initiated a strategic review following the Cosmos proposal. BMO Capital Markets acted as Cossette's financial adviser through the review process.

"(The Mill Road offer) better reflects Cossette's true value and exemplifies our commitment to maximize value for all our shareholders," Cossette Chairman and Chief Executive Claude Lessard said in a statement.

Cossette said it will continue to be led by Lessard and its current senior management team. Senior management shareholders, who control about 30 percent of the firm, have agreed to support the Mill Road offer, which is expected to close before the end of 2009.

Cosmos could not be reached for immediate comment.

($1= $1.05 Canadian) (Reporting by Euan Rocha; editing by Jeffrey Hodgson)

Source: http://www.reuters.com