U.S. giant Lowe’s to buy Rona in deal that would shake up home improvement sector

U.S. giant Lowe's has proposed to buy Rona in a $3.2-billion friendly deal that would shake up Canada's home improvement industry.

MONTREAL — U.S. giant Lowe’s has proposed to buy Rona in a $3.2-billion friendly deal that would shake up Canada’s home improvement industry.

For Lowe’s, Rona is a way to quickly become Canada’s leading home improvement retailer. The acquisition would mark the company’s foray into Quebec, where Rona was founded in 1939.

Rona said the agreement would allow it to tap into the strength of a multinational company while preserving its brand, business relationships and most of its current operations.

“This transaction is a win-win combination for Rona and Lowe’s as well as all stakeholders involved,” Rona CEO Robert Sawyer said in a conference call Wednesday.

“It is the intention to capitalize on this strong leadership position to transform the Canadian industry and offer more value to Canadian consumers.”

Lowe’s chairman and CEO Robert Niblock said the Canadian home improvement market is worth more than $45 billion and growing. The North Carolina-based company estimates a compounded average growth rate of 3.9 per cent between 2014 and 2018.

“We also like the market because of its long-term fundamentals, with its high level of home ownership and well-developed distribution infrastructure,” he said in a separate conference call.

Niblock and other Lowe’s executives also said that Rona has made a number of improvements since the two companies came close to a similar takeover agreement four years ago. That attempt failed in the face of opposition from the Quebec government and a number of Rona’s independent dealers.

Rona chairman Robert Chevrier said Lowe’s has made commitments to the Canadian company’s employees, suppliers and independent dealers, including the preservation of Rona banners.

Nonetheless, the announcement drew reaction from a union that represents workers at Rona. Teamsters Canada Local Union 1999 said the sale of a Quebec “economic showpiece” to American interests is raising concerns, even if Lowe’s is promising to maintain the majority of Rona jobs.

“Managers at Lowe’s need to know that we’ll be very vigilant regarding the more than 2,000 Teamster jobs at Rona,” union local president Serge Berube in a statement.

Quebec’s Caisse de depot, which owns about 17 per cent of Rona, said it supports the deal.

“Overall, la Caisse believes the transaction will result in equal or superior economic activity generated by the Rona banners in Quebec,” the Montreal-based pension fund manager said.

For Rona shareholders, Lowe’s (NYSE:LOW) is offering $24 cash per common share (TSX:RON) — about double what the stock was worth at the end of trading on Tuesday before the announcement.

The publicly traded shares soared Wednesday to just below the offer price, with nearly nine million traded in less than an hour after the market opened. The offer is about $10 above the $14.50 per share that was rejected in 2012.

Lowe’s said it has identified more than $1 billion in opportunities, including adding appliances to Rona stores, extending its private label and e-commerce capabilities and leveraging its supplier relationships and enhanced scale.

Rona has nearly 500 stores across Canada, including independent affiliated dealers.

With its network of 42 stores, Lowe’s trails Rona and Home Depot in Canada. But in the U.S, Lowe’s has the second-most stores in the home improvement sector after Home Depot.

Lowe’s Canada president Sylvain Prud’homme would head the merged operations from Rona’s headquarters in Boucherville, Que.

The transaction is expected to close in the second quarter after receiving regulatory approvals and the support of Rona shareholders by April 8.