Lowe's offers $3.2 billion for Rona
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Feb 03, 2016  |  Vote 0    0

Lowe's offers $3.2 billion for Rona

MONTREAL — Home renovation chain Lowe's unveiled a $3.2-billion friendly bid Wednesday to acquire Rona, four years after nationalist sentiment protected the Quebec company from a hostile takeover from the U.S. giant.

The deal is likely to shake up the fiercely competitive home improvement industry and comes after Lowe's expanded its footprint in Canada last year.

"I don't feel that we're giving up," CEO Robert Sawyer said in an interview Wednesday. "I think it's going to be a stronger company."

Rona has deep roots in Quebec that can be traced back to 1939, when a group of hardware stores was formed in response to a monopoly that the company says threatened its supply chain at the time.

Years later, Rolland Dansereau and Napoleon Piotte took control of the company and renamed it Rona — a combination of the first syllables of their names. It has since grown to nearly 500 stores throughout Canada.

"It's a bit sad that a Canadian retailer gets gobbled up, but we believe that the Canadian market is not big enough for three major home renovation retailers," said retail analyst Jean Rickli of the JC Williams Group, referring to Rona, Lowe's and Home Depot.

The prospect of a Quebec business mainstay falling into foreign hands drew a harsh response from Parti Quebecois Leader Pierre Karl Peladeau, who said the deal was the latest sign of the province losing control of its economy.

The announcement also sparked reaction from a union that represents workers at Rona. Teamsters Canada Local Union 1999 said the sale of a Quebec "economic showpiece" to American interests is raising concerns, even if Lowe's is promising to maintain the majority of Rona jobs.

"Managers at Lowe's need to know that we'll be very vigilant regarding the more than 2,000 Teamster jobs at Rona," union local president Serge Berube in a statement.

But Rona chairman Robert Chevrier downplayed concerns that Quebecers would object to the acquisition, noting that many of them shop at U.S. retailers such as Home Depot.

"I'm not so sure there's that much nationalism in the buying patterns," he said at a news conference.

While it hasn't finalized its integration plans, Lowe's said it plans to preserve existing jobs and Rona banners.

For Lowe's, the acquisition is a foray into Quebec and will allow it to expand its growth ambitions. Rona officials said they expected the company's profits would have been hurt if its deep-pocketed U.S. rival had opened 20 to 30 stores in Quebec, which accounts for half of Rona's revenues.

"It would have been extremely challenging for the next five years in the competitive environment that exists in Canada and more so with the aggressive approach of Lowe's opening more stores," Chevrier said.

Rona officials said the agreement would allow it to tap into the strength of a multinational company while preserving its brand, business relationships and most of its current operations. Lowe's Canada president Sylvain Prud'homme would lead the merged company from Rona's headquarters in Boucherville, Que.

Lowe's officials said they believe they can double the operating profitability of the combined Canadian company over five years after identifying more than $1 billion in opportunities including adding appliances to Rona stores, extending Lowe's private label and e-commerce capabilities and leveraging its supplier relationships and enhanced scale.

For Rona shareholders, Lowe's (NYSE:LOW) is offering $24 cash per common share (TSX:RON) — about double what the stock was worth at the end of trading on Tuesday before the announcement.

The publicly traded shares closed Wednesday at $23.30, just below the offer price, with nearly 20 million shares traded on the day. The offer is about $10 above the $14.50 per share that was rejected in 2012. Lowe's will also pay $20 for preferred shares and assume $445 million in Rona debt.

Quebec's Caisse de depot, which owns about 17 per cent of Rona, said it supports the deal.

"Overall, la Caisse believes the transaction will result in equal or superior economic activity generated by the Rona banners in Quebec," said the Montreal-based pension fund manager.

With its network of 42 stores, Lowe's trails Rona and Home Depot in Canada. But in the U.S, Lowe's has the second-most stores in the home improvement sector after Home Depot.

The transaction is expected to close in the second quarter after receiving regulatory approvals and the support of Rona shareholders by April 8.

Note to readers: This is a corrected story. A previous version had a headline that said the deal was worth $3.2 billion in cash.

By Ross Marowits, The Canadian Press

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