There have been a lot of negative comments in the national media following the Quebec government’s reaction to the offer made by American giant Lowe’s to buy Rona, a retail institution in the province and Canada’s leading hardware chain. Many derided the provincial finance minister’s comments that the Lowe’s proposal “was not in the interest of Quebec or of Canada” because the retailer “represents an important strategic interest.” Come on! many exclaimed. Stores selling hammers, two-by-fours and barbecues a strategic interest?
The minister, Raymond Bachand, ordered the government’s investment’s arm, Investissement Québec, to act so as to block any hostile takeover. At the same time, Rona’s largest shareholder, the Caisse de Dépôt et Placement, the province’s public pension and insurance fund manager, increased its stake in the company, clearly signalling that it did not welcome Lowe’s manoeuvre. To many outside Quebec, and not a few in the province, the provincial government’s attitude smacked of nationalist protectionism of the worst kind. They noted that Rona has been a poor performer in recent years, making costly strategic mistakes and losing ground to other retailers. In fact, Rona’s shares have been battered in the markets, losing 50 per cent of their value since 2007. True, the recession is partly to blame. But other retail stocks have done much better. Which is why some investors greeted the Lowe’s proposal, carrying a 30-per-cent premium, with keen interest.
Nationalism is part of most political decisions in Quebec, especially during election campaigns, as is the case this summer. Is this a phenomenon unique to the province, as many Canadians from other regions seem to believe? Isn’t nationalism involved when the federal government reviews attempts by foreign companies to take over Canadian firms? Were not many deeply saddened when the Hudson’s Bay Company was sold to American interests? Did not many celebrate when Tim Hortons came back to the Canadian fold?
Rona may not be a strategic asset like potash or oil, but it does play a unique role in Quebec’s economy because of its history and strong local roots. In the province, Rona is not a series of big-box stores. In fact, most stores carrying the Rona banner are independently owned and operated. Also, Rona has built very strong relationships with Quebec suppliers, making the company an essential client for many manufacturers. Finally, being present in every region of the province, Rona is nearly as iconic for Quebec as Canadian Tire is for the whole country. I doubt Canadians would react with indifference if some U.S. retailer tried to buy the chain built by the Billes brothers.
The government of Quebec is not only trying to protect Rona for purely political reasons, although those are certainly part of its reasoning. More substantively, it hopes to preserve a unique and still promising business model. To many analysts, including American ones, Lowe’s is particularly ill-suited to integrate and manage such an original company. First because the American retailer has recently had some problems of its own. And second because Lowe’s is used to a much simpler structure, all its stores being corporate-owned warehouses.
So keeping Rona Canadian is not only a nationalist proposition; it also makes sense for the country’s economy and for shareholders, except for those who are in a rush to sell their shares and don’t really care about the company.
Of course, prudence is warranted. The provincial government is not talking about “saving” Rona at all costs. Rather, the idea seems to be, especially from the Caisse’s perspective, to give Rona’s management room to manoeuvre, time to turn the retailer around and build value for its shareholders. If it appears that the current managers can not produce the right plan or do not have the determination and skills to carry it out, then new ones should be brought in. Meanwhile, if Lowe’s betters its proposal, not only as far as the price is concerned but also in the form of better guarantees for Rona’s autonomy, the Caisse and the government should analyze it with care and not close any doors.
In the end, that subtle blend of protection for worthwhile national companies and steadfast requirement for strong financial performance may become the new way of doing things for what is called “Quebec Inc.” It may also set an example for other jurisdictions. Therefore, Bay Street should applaud the provincial government’s and the Caisse’s recent decisions concerning Rona.