UPDATE 1-Cossette rejects Cosmos's new takeover offer

* Urges shareholders to reject Cosmos's amended offer

* Says offer does not constitute a superior proposal

TORONTO, Nov 25 (Reuters) - Cossette Inc KOS.TO, Canada's largest home-grown advertising company, urged shareholders on Wednesday not to tender shares to a takeover bid from Canada's Cosmos Capital that matches a rival offer from U.S. private equity group Mill Road Capital.

Earlier this month, Mill Road reached an agreement with Cossette to acquire the company for C$7.87 a share, trumping Cosmos's earlier bid of C$5.25 a share. Last week, Cosmos said it would match Mill Road's C$131.5 million ($125.3 million) offer. [ID:nN18504712]

However, Cossette said its current agreement with Mill Road is not subject to due diligence, while Cosmos's sweetened bid is subject to a due diligence process.

Cossette said as the amended Cosmos offer does not provide greater value to shareholders than the Mill Road offer, its board cannot determine that the offer constitutes a superior proposal. [ID:nN20245695]

Hence, if it permits Cosmos to complete a due diligence process, this would constitute a breach of agreement with Mill Road and entitle Mill Road to a C$3.25 million break-up fee.

However, Cosmos has also said it may consider raising its bid to C$8.10 a share. Cossette said it is still in talks with Cosmos about this possibility.

Shares of Cossette were flat at C$8.02 on Wednesday morning on the Toronto Stock Exchange. The shares are trading above Mill Road's proposed offer, indicating that shareholders expect a sweetened offer to materialize.

($1=$1.05 Canadian) (Reporting by Euan Rocha; editing by Peter Galloway) ((euan.rocha@thomsonreuters.com; +1 416 941 8185; Reuters Messaging: euan.rocha.reuters.com@reuters.net))