Canada’s leading home improvement retailer, RONA, has rejected a $1.8 billion takeover offer from Lowe’s Companies, saying the deal isn’t in the best interest of RONA or its stakeholders. Echoing the board’s rejection was the government of the province of Québec, where RONA is based. It piled on saying that a Lowe’s deal “does not appear to be in the interest of Québec or Canada.”
Clearly, Lowe’s had hoped to avoid a cross-border battle for its rival in Canada. A press release issued today by the US company said that “At RONA’s request, the chief executive officers of Lowe’s and RONA first met one year ago … to discuss a potential relationship between the two companies.” Despite RONA’s rejection, Lowe’s said it will continue to pursue a hostile deal as it seeks to grow its retail presence in Canada. Since entering the Canadian market five years ago, Lowe’s has grown to number just 31 stores, none of which are in Québec, the country’s largest retail market. (Lowe’s operates more than 1,745 superstores in all 50 US states as well as several in Mexico.) By buying RONA, Lowe’s would acquire about 1,500 retail outlets, including about 840 under the RONA banner. The deal would position Lowe’s firmly ahead of Home Depot of Canada, a subsidiary of the world’s largest home improvement retailer The Home Depot.
Several other high-profile American retail chains, notably Target Corp., are seeking to expand in Canada, lured by its relatively healthy economy and housing market. Canada presents an attractive target to US merchants reaching the saturation point at home.
So why the resistance from the local government? RONA’s 2012 proxy filed in March shows that the province’s pension fund, Caisee de dépôt et placement du Québec, is a major RONA shareholder with about 12% of its shares. It could be that both the government and RONA are holding out for a richer bid.