U.S. home improvement retailer Lowe’s Cos Inc (LOW.N) agreed to buy Canada’s Rona Inc (RON.TO) in a deal valued at $3.2 billion (US$2.28 billion), winning over Rona’s board with a far higher offer than its previous unsolicited bid more than three years ago that was opposed by the company and politicians in Québec.
The deal will put Lowe’s in a stronger position to compete with Home Depot Inc (HD.N) in Canada’s more-than US$30 billion home improvement market.
Lowe’s, which withdrew a $1.8 billion offer for Rona in September 2012, said on Wednesday it had made key commitments including moving the headquarters of its Canadian business from Toronto to Rona’s home base of Boucherville, Québec.
It also said it would retain the vast majority of Rona’s employees, keep the brand and ramp up distribution to independent dealers, many of whom had opposed the previous deal.
Lowe’s previous attempt to take over Rona became a hot-button issue during the 2012 provincial election campaign in Québec, where the company has deep roots.
Asked on a call with analysts why Lowe’s had made a new offer, Chief Executive Robert Niblock said Rona was “a much better business today.”
After years of disappointing sales, Rona has been closing unprofitable stores and generally streamlining operations under Chief Executive Robert Sawyer, who took the job in April 2013. Sales at established stores have risen five quarters in a row.
Lowe’s push into Canada comes a year after Target Corp (TGT.N) exited the country after less than two years due to supply chain and other issues.
The big difference is that Lowe’s is buying an established business, while Target was starting from scratch.
Lowe’s, the world’s No. 2 home improvement chain, has been expanding in Canada in recent years. Still, only 40 of its 1,850 stores in North America were in Canada as of March. Rona has about 700 stores, according to its website.
Home Depot has 182 Canadian stores, its website shows.
Lowe’s will pay $24 per share for Rona’s common shares – more than double the stock’s close on Tuesday. It has also offered $20 for each preferred share.
Rona’s largest shareholder, the Caisse de dépôt et placement du Québec, said it would accept the offer. The Caisse holds about 17 percent of Rona, Thomson Reuters data shows.
BMO Capital Markets analyst Peter Sklar said the deal would likely win regulatory approval.
Rona’s shares were trading at $23.57, their highest since July 2007.
(Reporting by Amrutha Gayathri and Ramkumar Iyer in Bengaluru; Editing by Maju Samuel and Ted Kerr)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)
Photo courtesy of Reuters/Chris Wattie