The very public rematch for control of Cossette Communication Group, Canada’s largest advertising network, has a winner: CEO and chairman Claude Lessard. In the wake of the news, announced Nov. 10, that Lessard had found a buyer willing to trump co-founder François Duffar’s bid for control, Canadian Business has also learned that this same outcome was arrived at in a previously unreported, behind-closed-doors co-founders’ fight two years ago. Only this time, the decision is final.
The two men, who together built the Quebec City–based company on the strength of long, lucrative client relationships with the likes of Bell, McDonald’s and General Motors, took their fight public this summer. That’s when Duffar and another manager launched, with institutional shareholder backing, a $5.25-per-share bid to buy up Cossette’s underperforming stock, then trading between $3 and $4.
Lessard and his board immediately characterized the bid as an opportunistic, low-ball grab for the company — a stance that many greeted skeptically, doubting Lessard could land a richer offer. But find one he did — an all-cash $7.87-per-share ($131.5-million) offer from U.S. investment firm Mill Road Capital. Mill Road, which wants to keep current management in place, has the support of Cossette’s directors and management. And while one analyst labelled the offer as “generous,” a Cossette executive says the agency in fact attracted three final takeover bids that were richer than that from Duffar’s Cosmos Capital.
Cossette is apparently just as happy with Mill Road’s promised hands-off approach as it is with the big pile of cash. “We are very pleased with this transaction for many reasons,” said the publicity-shy Lessard in a release. “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.” Rival co-founder Duffar, who cut all formal ties with Cossette this spring after resigning as an executive and director, said he wanted to shake up the struggling ad conglomerate with “a reorganization of its resources and capital [that would] lead to a more efficient and dynamic Cossette.”
The lengthy private battle that preceded the public tussle for control was much more in keeping with the style of Cossette’s two French-Canadian founders. Then, the two men, in a stalemate over the company’s direction, faced off before the two other Cossette executives who controlled the company through multiple voting shares in a secret winner-take-all vote. “The person that wins the vote stays, and the person that loses the vote has to go,” a well-placed source said of the process. Duffar pushed his case for taking Cossette private again and ultimately lost a three-to-one decision. An arbitrator was brought in to draw up an arrangement that would see Duffar leave the company in stages over a five-year period, an important consideration in a business where personal client relationships — such as Duffar’s with Bell — were so important. The deal also gave either man the option to end the arrangement, a clause Duffar exercised earlier this year.
A key to Duffar’s public bid was to enlist the support of one of the three controlling shareholders who thwarted him two years ago. Georges Morin, a Cossette senior vice-president and director, quit the company and a few days later emerged as a part of Duffar’s takover play. While the two fell short of their goal, they may have ended Cossette’s senior-level stalemate in the best way possible. “I think all the shareholders of Cossette won. The price, I am amazed at,” says Ian Saville, the former head of Cossette’s English Canada operations and a multiple-voting-share-bloc member who left before the showdown. “Management stays in place, which is always comforting for clients, and they are a private company again, which is I think when it was most enjoyable.”
That’s unlikely to provide any solace for Duffar. “He doesn’t like to lose,” said Saville. “He got some money, and that is fine, but I think he was [wanting] much more than that.”