Lowe’s Rona deal faces Quebec opposition
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Feb 03, 2016  |  Vote 0    0

Lowe’s Rona deal faces Quebec opposition

The $3.2B acquisition still likely to go ahead and create the largest home improvement retailer in Canada


The $3.2 billion purchase of Rona Inc. by U.S. competitor Lowe’s Companies Inc. has drawn renewed criticism in Quebec.

“We are losing too many companies,” Pierre Karl Péladeau, head of the opposition Parti Québécois, told reporters Wednesday in Quebec City after urging Premier Philippe Couillard to block the sale.

“We are losing too many head offices. That’s not how we are going to enrich Quebec, quite the contrary.”

But protests are unlikely to kill the deal as the transaction has been unanimously approved by the boards of directors of Lowe’s and Rona and is supported by the management of both companies.

The Rona board will recommend that shareholders vote in favour of the deal at a special meeting at the end of the first quarter.

The agreement provides for a cash purchase price of $24 per share and $20 per preferred share. The offer represents a premium of 104 per cent to Rona’s closing common share price Tuesday and a 38 per cent premium to its 52-week trading high $17.36.

Lowe’s has taken a more seasoned approach than it did in 2012 when it last tried to buy Rona igniting a political firestorm that killed the deal.

This time, the man in charge of Canadian operations at Lowe’s is Quebecer Sylvain Prud’homme, appointed in 2013. Lowe’s is offering to buy shares at a much richer price and it’s also promising to keep operations headquartered in Boucherville, maintain Rona’s multiple store banners and enhance distribution services to independent dealers.

It also agreed to allow Rona to continue to employ the vast majority of its current employees, maintain key executives from Rona’s leadership team, continue Rona’s local and ethical procurement strategy and potentially expand relationships that both Lowe’s and Rona have developed with Canadian manufacturers and suppliers.

“I’m feeling very excited about the opportunity,” said Prud’homme, adding that the acquisition will potentially offer Canadian suppliers access to Lowe’s global market.

“Every decision we make for the Canadian market around assortments, products, marketing – they are all made here in Canada,” he said.

He downplayed job losses that could result as the companies merge operations.

“We think we can grow both companies at a higher rate than both companies are achieving now,” Prud’homme said. “We will bring new categories to the network, we’re going to bring e-commerce to the network…I think these two companies will be in a position to compete at a much higher level, and moving forward will bring growth by default.”

The real winner will be consumers, said Sally Seston, director, Retail Category Consultants, Inc. “This will force Home Depot to up their game and will possibly force Canadian Tire to look at what they’re doing in the home renovations market,” said Seston.

But the merger is expected to add $1-billion to the bottom line, she pointed out.

“That screams merging IT, private brands, human resources. While they say today they will keep both banners and brands, I think over time we’ll see that change because there is a lot of expense to multiple banners.”

Simplifying to cut costs also suggests reducing the number of suppliers, she said. If Rona has two paint suppliers and Lowe’s has two, they’re not likely to keep all four. They’ll keep two – and it’s more likely that the smaller suppliers will lose out, said Seston.

“In the majority of instances I think you will see that the American supplier is going to win.”

Who controls Rona is a sensitive issue in Quebec because some companies that were based in the province, such as aluminum maker Alcan Inc., grocer Provigo Inc. and Montreal Exchange Inc., saw their local footprint shrink after being acquired in the last two decades.

“This transaction is a win-win combination for RONA and Lowes, as well as stakeholders,” said Robert Sawyer, RONA president and chief executive officer, during a webcast for investors held hours after the announcement was made.

A previous, unsolicited attempt by Lowe’s to purchase Rona in 2012 stalled after then-finance minister, Raymond Bachand, opposed the deal.

Rona was founded in 1939 and is seen in Quebec as an integral part of the province’s history and economy, and a proud symbol of Quebec entrepreneurialism.

The deal must be approved by Canada’s Competition Bureau and meet the requirements set out under the Investment Canada Act governing foreign ownership.

– with files from Toronto Star wire services

Toronto Star

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(3) Comment

By DAVID | FEBRUARY 05, 2016 12:04 AM
Hmmm. Target anyone?
By G'dayEh | FEBRUARY 04, 2016 11:06 AM
@John Quebec is still part of Canada, so if they lose the ROC loses too. Ultimately, the Yanks (Lowes/suppliers/marketing consultants/printers) will win, when opportunities are siphoned south. In the short term, the only Canadian winners are those who own shares in Rona.
By John | FEBRUARY 04, 2016 09:13 AM
Glad to see this happen. At some point Lowes will pull head office out of Quebec because of all the foolishness the Quebecers want.
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