Lowe's bid for RONA still a chess game

Lowe’s, the world’s second-largest home improvement retail chain, would still like to take over RONA, Canada’s largest such chain, but the deal seems further away from being done every time another politician gets involved.

At the end of July, both companies confirmed publicly that Lowe’s had recently made an $1.8-billion purchase offer, equivalent to $14.50 a share for RONA, that was rejected by the RONA board. That offer was about 20 per cent higher than RONA’s shares were then trading for, and Lowe’s claimed to have some 15 per cent of RONA’s investors eager to accept the deal.

But now everyone from RONA’s independent dealers (the company has a blend of both corporate-owned and franchise-type outlets, the former mostly big boxes and the latter mostly building supply and hardware stores) to politicians has dumped on Lowe’s overtures.

The election in Quebec last week of a separatist Parti Quebecois government, even though a minority one, is unlikely to make the deal easier to consummate. The PQ’s leader, premier-designate Pauline Marois, took pains on the morning after the election to reiterate that her government would block takeovers of Quebec-based firms by “foreign companies.” She did not mention RONA by name.

Three weeks ago, a large proportion of RONA’s independent dealers, representing some 164 stores, signed an open letter to Lowe’s president and CEO, Robert Niblock, saying “No, thank you” to a Lowe’s takeover. “We feel that Lowe’s business model is incompatible with the one which we have individually chosen to engage,” the letter said.

Lowe’s has hired a lobbyist in Ottawa, Prospectus Associates, to help it make its case for the takeover at the federal level. But it is the Quebec government that has most power to help organize a competing bid for RONA shares, through the province’s public pension fund, the Caisse de Depot et Placement du Quebec, and also through Investissement Quebec.  The Caisse has already increased its share of RONA to 14 per cent.