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Rona rejects Lowe's bid

by Lou Whiteman | Published July 31, 2012 at 11:30 AM

Canadian home improvement retailer Rona Inc. on Tuesday, July 31 said it had rejected an unsolicited C$1.76 billion ($1.75 billion) offer from U.S. rival Lowe's Cos., arguing that the bid was not in the best interest of shareholders.

Boucherville, Quebec-based Rona said it received the C$14.50 per share offer from Lowe's on July 8 and determined the offer, which is priced 22% higher than Rona's Monday close, failed to match the opportunities the company had as a standalone.

Rona, working with advisers from Scotiabank, BMO Capital Markets, Norton Rose Canada LLP and Davies Ward Phillips & Vineberg LLP, said its board determined "the corporation should remain focused on executing its business plan with a view to capturing significant opportunities that it sees for its business."

Investors in Rona have been concerned that potential expansion by Lowe's and Home Depot Inc. into Canada could cause trouble for the Canadian retailer. Rona same-store sales fell 7.3% last year, prompting the company to announce plans to close or restructure 79 of its larger stores.

Mooresville, N.C.-based Lowe's in a statement confirmed the offer, and said that institutional investors who together own about 15% of Rona's shares have indicated that they support the proposal. The company said that it has also purchased a small stake in Rona, and is considering options.

'We are disappointed that Rona's board of directors has rejected our friendly non-binding proposal, which is clearly attractive for Rona shareholders," Lowe's chairman and CEO Robert A. Niblock said in a statement. "We hope that in the exercise of its fiduciary duties, Rona's board will reconsider and recognize that our proposal represents a very attractive opportunity for all Rona shareholders and the company's major stakeholders."

Lowe's said that the two companies first met to discuss a deal in July 2011, at Rona's request, and Lowe's made an offer on Dec. 15. That proposal was rejected, but the U.S.-based retailer returned in July with its latest bid.

The suitor said the bid offers a premium of 36.7% over Rona's closing price on July 6, and 42.4% over the average share price for the 20 trading days ending July 6, when it submitted its bid.

Lowe's, the second largest U.S. home improvement retailer, has just 16 stores in Canada. Rona is Canada's largest distributor and retailer of hardware and home improvement products, supplying nearly 1,500 sales outlets including 840 shops under its banner.

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