MONTREAL - Advertising agency Cossette Inc. found a white knight Tuesday in a U.S. private equity investor that has agreed to pay $131.5-million in cash for the firm, topping a hostile bid by a group led by former executives of the company.
Mill Road Capital LP has agreed to take Cossette Inc. (TSX:KOS) private, but leave the current management in charge and the head office in Quebec City.
The friendly offer will see the U.S. firm pay $7.87 per share in cash for Cossette, which counts General Motors Canada and McDonald's Restaurants as clients.
"It is kind of our white knight and we're very pleased about that," said Marcel Barthe, Cossette's vice-president of corporate strategy.
The offer tops a bid from Cosmos Capital Inc., which had been offering $5.25 per share for Cossette. That valued Cossette at about $87.7 million, but would have cost Cosmos less since it already has nearly one-fifth of Cossette's stock.
In the summer, Cosmos, which includes former Cossette senior executives who had broken with their former partners, had offered $4.95 per share for Cossette.
Cosmos wasn't available for comment.
Cossette's board advised shareholders Tuesday to reject the Cosmos offer, which expires on Dec. 7, as it "significantly undervalues" the company.
Investors reacted positively to the offer, sending shares up 33 per cent or $1.92 to close at $7.77 Tuesday, just short of the Mill Road offer, on the Toronto Stock Exchange.
Cossette is known for its ad campaign with talking beavers Frank and Gordon with Bell Canada (TSX:BCE) for the 2006 Winter Olympics in Turin, Italy. The furry creatures were retired last year by Bell.
The Quebec ad and communications agency has more than 1,400 employees with offices across Canada and in California, the United Kingdom and China.
Customers include General Mills of Canada, Bell, Coca-Cola Ltd., Hydro-Quebec and Sony Ericsson and Virgin Travel and Virgin Trains in the United Kingdom.
Connecticut-based Mill Road is focused on investments in publicly traded companies under $250 million in size. Its current portfolio includes companies in retail, manufacturing, business services and consumer products industries.
National Bank Financial analyst Adam Shine said Mill Road's offer is "rather generous" and isn't likely to be exceeded.
"This appears to be a very full and more than fair offer for Cossette, whose struggles as a public company became more acute in the past two years in the face of lost mandates and recessionary pressures," Shine wrote in a research note Tuesday.
Barthe also noted that Cosmos offer included financing from a major U.S. investment firm, H.I.G. Capital.
The deal, which includes a $3.25-million break fee, is expected to close by the end of the year, assuming shareholders give their approval at a meeting expected on Dec. 18.
Cossette CEO and president Claude Lessard said Mill Road's offer reflects the company's value.
"Furthermore, it is occurring with a strategic partner that has already proven its respect for our organization," Lessard added.