Lowe’s Shakes up Canada’s Home Improvement Industry with Rona Deal
– Momentum Public Relations –
Lowe’s, an American Fortune 50 home improvement company operating hardware and home improvement stores throughout the United States, Canada and Mexico, recently proposed to purchase Rona in a deal that could potentially shake up Canada’s home improvement industry. Rona, founded in Quebec in 1939, currently operates nearly 500 stores throughout Canada, including several independent affiliated dealers and outlets in rural communities.
On February 3, Lowe’s offered to acquire Rona for CA$3.3 billion (US$2.3 billion). Under the terms of the deal, Lowe’s would acquire all of the issued and outstanding common shares of Rona for CA$24 per share and all of the issued and outstanding preferred shares of Rona for CA$20 per share. This represents a premium of 104{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} on RONA’s February 2 closing share price and a 38{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} premium over the 52-week high of CA$17.36.
The deal has been unanimously approved by the Boards of Directors of both Lowe’s and Rona. The Rona Board reports that they’ve received an opinion from Scotia Capital Inc. indicating that the transaction is fair from a financial point of view. In addition, the proposed deal has the full support of the management teams of both companies.
Lowe’s first entered the Canadian market in 2007. The company currently operates 42 stores in Canada out of a total of 1,845 North American home improvement and hardware stores. For Lowe’s, the Rona deal offers a simple way to become the leading home improvement retailer in Canada — snagging the top spot currently occupied by Home Depot. Lowe’s has been trying to build its Canadian business organically, but is struggling to keep its current stores competitive. The Rona acquisition would also allow Lowe’s entry into the Quebec market, where the company currently has no presence.
In a recent press release, Lowe’s stated it sees opportunities for CA$1 billion plus in revenue and profit growth as a result of the purchase. The company cites factors such as leveraging shared supplier relationships and enhanced scale, taking advantage of Lowe’s private-label capabilities and eliminating Rona’s public company costs. According to Lowe’s, there is a potential to double operating profitability in Canada over the next five years.
For Rona, the deal offers the chance to benefit from the strength of an association with a multinational company without disturbing its brand and core business relationships. Lowe’s has agreed to maintain Rona’s multiple retail store banners and to continue the company’s local and ethical procurement strategy. Additionally, Lowe’s will maintain key executives from Rona’s current leadership team and headquarter its Canadian operations in Rona’s home base of Boucherville, Quebec.
Although general reaction to the proposal has been mostly positive, the union representing workers at Rona has expressed concern about the deal. Lowe’s has publicly promised to maintain the majority of Rona jobs, but Teamsters Canada Local Union 1999 says their members are concerned about the sale of an economic showpiece in Quebec to American interests. Union representatives have stated they’ll be aggressive in their efforts to ensure that the rights of Rona employees are protected throughout the transaction.
It should be noted that this is not the first time Lowe’s has offered to purchase Rona. In 2012, the company made a hostile CA$1.8 billion offer that was brought down in part by vocal disapproval from both Canada’s Liberal Party and the separatist Parti Québécois. This time, however, all key stakeholders appear to be in agreement as to the economic and commercial benefits of the proposal.
The declining value of the Canadian dollar is also a factor. In 2012, the Canadian dollar and the US dollar were equal in value. Today, the Canadian dollar is worth about US$0.71 US. This means the offer to purchase Rona shares for CA$24 costs Lowe’s US$17 in its operating currency. Lowe’s can credibly say they’re offering double what the market says Rona is worth, while paying only slightly more than the CA$14.50 per share offer they made in 2012.
Regulators in both Canada and the United States need to give their approval for the purchase of Rona to be finalized, but this is expected to be a mere formality. Quebec’s Minister of the Economy, Sciences and Innovation, Dominique Anglade, has already stated she sees no immediate reason to block the Rona deal.
If all goes according to plan, Lowe’s will finalize the purchase of Rona in the second quarter after receiving regulatory approvals and the endorsement of Rona shareholders by April 8.