Lowe’s to Acquire Canada’s Rona for $2.3B

The home improvement giant is hoping to avoid the political complications that helped derail its 2012 offer for Rona.
Katie Kuehner-HebertFebruary 3, 2016

Lowe’s said Wednesday it had agreed to acquire Rona Inc. for $2.3 billion, four years after the Canadian home improvement retailer rejected its advances amid a political backlash.

The price represents a 104% premium over Rona’s closing common share price on Tuesday. The company operates a network of 236 corporate and 260 dealer-owned stores with nine distribution centers throughout Canada.

“The transaction is expected to accelerate Lowe’s growth strategy by significantly expanding our presence in the Canadian market through the addition of Rona’s attractive business and excellent store locations across the country,” Lowe’s CEO Robert A. Niblock said in a news release.

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“Importantly, the transaction also provides Lowe’s with entry into Quebec, where Rona is the market leader and we have no presence,” he added.

But Lowe’s shares fell 6.5% to $67.17 in trading Wednesday, suggesting investors are concerned that the Canadian expansion could distract Lowe’s from its main business.

“There is concern this could be a distraction.” Michael Baker, a senior analyst with Deutsche Bank, told the Wall Street Journal. “It seems less risky for Lowe’s to focus on its core U.S. business.”

In 2012, Rona rejected Lowe’s $1.75 billion takeover offer, which represented a 37% premium over its stock price. That proposal ran into opposition from Quebec politicians who balked at the province losing another corporate head office and one of its top retailers.

As Fortune reports, Lowe’s made specific commitments in its latest offer to mollify any potential opposition, including putting its Canadian headquarters in Boucherville, Quebec, maintaining Rona as a separate chain, and minimizing job cuts.

“Lowe’s also lined up support from Rona’s board, which had opposed the 2012 bid, and got buy-in from the competition bureau of Quebec and Canada,” Fortune said. “So the deal should go through.”

If the deal does proceed, it would create Canada’s biggest home improvement retailer with 2015 pro forma revenues of roughly $4.1 billion. Lowe’s, which entered the country in 2007, now operates 42 stores in Canada, primarily in Ontario.