TORONTO (Reuters) – Canada’s Cosmos Capital raised its takeover offer late on Tuesday for advertiser Cossette Inc (KOS.TO), matching a rival offer by a U.S. private equity group and saying it could go even higher.
The offer valued Cossette at C$131.5 million ($125.1 million) and is the third attempt by Cosmos to take over Canada’s largest homegrown advertising agency.
It is also its most aggressive, and a source close to the negotiations said it would force rival Mill Road Capital to either raise its own C$131.5 million bid, or back down from the takeover battle.
Cossette is small by international standards — ranked about 23rd globally — but is a giant in Canada, where it grew from a tiny shop in the early 1970s to a transnational firm with clients including McDonald’s (MCD.N) Restaurants of Canada, Bell Canada (BCE_pe.TO), General Motors of Canada and Coca-Cola Ltd (KO.N).
Cossette’s allure includes a strong presence in Canada’s French-speaking province Quebec, a difficult market to crack for foreign companies, as well as assets in Britain, where it set up in 2003.
Cosmos, advised by Genuity Capital Markets, controls 18.7 percent of Cossette. It also has lock-up agreements with Bergundy Asset Management, which holds 11.1 percent, and Beutel Goodman & Co, with 7.6 percent of the shares.
“By matching, Cosmos has secured those and what that means is that the Mill Road transaction can’t go forward,” the source said, because the Mill Road offer would need support of two-thirds of the shares to go forward.
The source said the decision to match, and not exceed, the Mill Road offer was based on the need to secure the lock-up agreements.
Cossette could not be reached for immediate comment.
Like Mill Road’s Nov. 10 bid, Cosmos offered C$7.87 per share, all cash, for each of the approximately 16.7 million issued and outstanding subordinate voting shares of Cossette.
The offer was fully financed, but it was conditional to due diligence and to receiving access to Cossette’s virtual data room after it was barred from it in July, following its first hostile bid.
The offer on Tuesday bettered a C$5.25 a share, C$88 million, offer by Cosmos in October and a July offer at C$4.95 a share.
After rejecting Cosmos’ first offer, Cossette put itself up for sale officially, inviting bidders from around the world to review its books.
“Cosmos has requested that the Board of Directors of Cossette provide Cosmos with access to all nonpublic information, which Cossette has made available to other interested bidders,” Cosmos, whose investors include two of Cossette’s founding partners, said in a statement.
“Cosmos has indicated to Cossette’s board that Cosmos may increase its bid price above C$7.87 upon satisfactory review of such information,” Cosmos said.
Cossette is being advised by BMO Capital Markets, of the Bank of Montreal (BMO.TO).
Cossette shares have more than doubled since the initial Cosmos offer in July and are trading just below the offer value, at C$7.80 – near levels last seen in late-March, 2008. ($1= C$1.05)
By Pav Jordan
(Editing by Ian Geoghegan)