Canadian Advertising Firm Cossette to Go Private

Deal With a U.S. Investment Firm Comes With $125 Million Price Tag Described as 'Generous'

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TORONTO ( -- Cossette, long the largest Canadian-owned agency network in a sea of multinationals, is set to go private.

The network's buyer is American investment firm Mill Road Capital, whose all-cash offer of C$7.87 per share values the company at approximately C$131.5 million, or $125.3 million, based on 16.7 million outstanding shares. The sale price is 50% higher than the bid made by Cosmos Capital, a firm led by former Cossette executives François Duffar and Georges Morin that sparked the ownership change with an unsolicited offer for the company in July.

According to a release, Claude Lessard, Cossette's president, CEO and chairman of its board, will remain at the helm of the soon-to-be private company.

"We are very pleased with this transaction for many reasons," Mr. Lessard said in a statement. "It better reflects Cossette's true value and exemplifies our commitment to maximize value for all our shareholders. Furthermore, it is occurring with a strategic partner that has already proven its respect for our organization, our brand and our people, and it ensures total continuity with our trusted clients who have supported us throughout this process. This transaction is fully supported by the senior management team."

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The Greenwich, Conn.-based Mill Road, which boasts a portfolio in a "broad range of industries, including retail, manufacturing, business services, and consumer products," was one of the parties that Cossette's' financial adviser, BMO Capital Markets, identified early on as an ideal investor.

"Cossette is an outstanding brand in the communications sector and a great company. We are very pleased to partner with the management team who has our full support in deploying their strategic plan," said Thomas Lynch, senior managing director of Mill Road, in the release. Both Lessard and Lynch declined requests for interviews.

A bulletin from National Bank Financial calls Mill Road's offer "generous," noting it represents a significant multiplier on the bank's projections for the Cossette's earnings before interest, taxes, depreciation and amortization in 2010 of C$18.2 million.

"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," the bulletin read.

While the offer may be good news for shareholders, Frank Palmer, CEO of DDB Canada, believes the deal will lead to a very different kind of agency.

"The ownership will be with someone who doesn't own ad agencies," Mr. Palmer told Marketing. "It seems to me it will be run by a company in the business to make money. ... Cossette is going to have to perform a lot differently than they have been."

Mr. Palmer said Cossette has not been as profitable as it could have been in recent years. "Claude [Lessard] will stay in charge as long as he makes them money," Mr. Palmer said.

Rob Guenette, CEO of Taxi, which assumes Cossette's throne as the largest Canadian-owned agency network, agrees that things will change within Cossette.

"That kind of ownership has a different criteria for performance," Mr. Guenette said. "In private equity, there's a lot of scrutiny there."

Cossette has scheduled a shareholder meeting for Dec. 18, where a two-thirds majority vote is needed to approve the deal. Cossette's 10 senior shareholders, which account for approximately 30% of voting shares, have entered into an agreement to vote in favor of the deal.

The company has also agreed to stop soliciting ownership bids. However, it will consider other unsolicited bids it deems favorable to shareholders.

Today's announcement also included news that Cossette's board have unanimously recommended its shareholders reject Cosmos' latest offer of C$5.25 per share, which it made in October after its initial bid of C$4.95 was deemed too low by the board.

Cosmos Capital did not respond to requests for comments.

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