Lowe's to Acquire Canadian Home Improvement Chain Rona--2nd Update
February 03 2016 - 10:33AM
Dow Jones News
By Austen Hufford
Lowe's Cos. said it would acquire Canadian home-improvement
chain Rona Inc. for about 3.2 billion Canadian dollars (US$2.3
billion) in a move to expand its operations in Canada, less than
four years after Rona rebuffed a buyout offer from the home
improvement chain.
Lowe's will pay about C$24 (US$17.15) for each outstanding
common share and C$20 for each outstanding preferred share of Rona.
The deal may include debt. The price represents a 104% premium over
Rona's closing common share price of C$11.77 on Tuesday.
Rona shares nearly doubled to $23.33 in trading on the Toronto
Stock Exchange, while Lowe's shares fell 7% to $66.87 in midmorning
trading in New York.
Rona is a Canadian retailer and distributor of hardware, home
renovation products and building materials. The company operates a
network of 236 corporate and 260 dealer-owned stores with nine
distribution centers throughout Canada.
"The team at Lowe's has presented us with an excellent plan that
enables our company to maintain its brand power while at the same
time leveraging Lowe's global presence to build upon and expand our
reach," Rona's Chairman Robert Chevrier said.
Rona's acceptance of the deal is a turnaround from the cold
shoulder it gave Lowe's previous 2012 offer to buy the company for
C$1.76 billion (worth about US$1.75 billion at the time). That
offer represented a 37% premium over Rona's stock price. At the
time, Rona said the unsolicited proposal wasn't in the best
interests of the company or its shareholders.
In response to the higher cost and higher premium of the new
deal, Lowe's Chief Executive Robert Niblock said Rona is worth more
today.
"They've done quite a bit to improve their operations" Mr.
Niblock said on a call to discuss the deal. In an interview with
The Wall Street Journal, Mr. Niblock said, "we are in a much
different place than where we were last time."
The 2012 offer also faced challenges from the Quebec government,
with its then finance minister telling reporters that Rona was a
"strategic asset" that shouldn't fall into foreign hands.
Lowe's current bid includes key differences that may increase
its chances of success this time. Lowe's said it agreed to several
stipulations related to keeping jobs and operations in Canada.
Lowe's said it would keep employing the "vast majority" of current
employees, will base Lowe's Canadian operations in Boucherville,
Quebec, and will continue to use Rona brands.
The latest offer requires approval from Canada's antitrust
authority, known as the Competition Bureau, and it needs to show
that the deal would generate a net economic benefit for Canada
under the country's foreign-takeover rules.
Unlike the previous unsolicited proposal, the offer was friendly
and has the unanimously support of both companies' boards. Mr.
Niblock, Lowe's CEO, said in the interview that Lowe's had been
following the progress of Rona over the past several years and that
he reached out to Rona's chairman in 2015.
Citing in part Lowe's commitments to its presence in Quebec,
Caisse de Depot et Placement du Quebec, the giant provincial
pension fund, said it supports the transaction. The Caisse is
Rona's largest shareholder with about a 17% stake, according to
FactSet data.
Since 2012, the Canadian dollar has depreciated against the
American dollar falling from roughly parity to C$1.39 for each
US$1, making the deal relatively cheaper for Lowe's.
Lowe's Canada, which entered the country in 2007, now operates
42 stores, primarily in Ontario. Lowe's doesn't have any stores in
Quebec and the company didn't previously have plans to expand
eastward. Almost half of Rona's stores are in Quebec.
With the Rona acquisition included, the Canadian operations
would have had revenue of C$5.6 billion in 2015. French-speaking
Sylvain Prud'homme, a Canadian retail veteran and president of
Lowe's Canada, will continue to head the Canadian operation after
the acquisition. Mr. Prud'homme's hiring in 2013 was seen at the
time as a sign that Lowe's hadn't given up on Rona.
The deal is expected to close in the second half of the year and
will add to Lowe's earnings. Lowe's said it has identified ways to
get more than C$1 billion of increased revenue and operating
profitability in Canada, including using shared suppliers and
introducing appliances into some Rona stores.
Recently, Lowe's has benefited from higher home values and more
people moving into new homes, which both spur spending on home
projects.
Ben Dummett in Toronto contributed to this article
Write to Austen Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
February 03, 2016 11:18 ET (16:18 GMT)
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