Knowing when to exit gracefully, before your colleagues not so subtly show you the door, is not something that is taught in school. Perhaps it should be.
It would have been useful to the former mayors of Montreal and Laval. Gérald Tremblay and Gilles Vaillancourt have just quit after being pressured for years to resign over city-hall corruption allegations. And it would have been useful to Robert Dutton, whose departure from hardware chain Rona Inc. was also overdue.
The Caisse de dépôt et placement du Québec, its most important shareholder, has stood by the troubled Boucherville, Que., retailer by raising its stake to 14.2 per cent shortly after Lowe’s Cos. Inc. unsolicited proposal was unveiled. But even the Caisse has lost patience after discovering that fierce competition and prudent consumers have floored the company’s profits.
Michael Sabia, the Caisse’s CEO, made it known to Rona’s board that he was utterly displeased with the retailers’ latest report card, according to a Caisse source. But the decision to oust Mr. Dutton to “boost” the fatigued retailer had already been taken at Tuesday’s board meeting, says a Rona insider.
It is somewhat ironic that Mr. Dutton held on for so long at a company that, as a teenager, he never wanted to work for. The young Mr. Dutton was opposed to taking over his parents’ hardware store in Sainte-Dorothée, north of Montreal. He finally did so when he left business school in 1977.
In his 35 years at Rona, he rose through the ranks, landing the CEO’s chair in 1992. He expanded Rona outside Quebec, transforming the regional retailer into the No. 1 hardware chain in Canada, with a 19-per-cent market share. Many industry observers doubted that this mismatch of corporate, franchised, and affiliated stores of all sizes would survive the arrival of big boxes from Réno-Dépôt (which Rona finally bought) and Home Depot.
Just as Rona was late to embrace big-box outlets, the company took a long time before recognizing that their deployment failed, as these vast stores struggled against a nimbler competition. Rona now hopes to woo customers and to boost its sagging profitability with small proximity stores that are to be run more efficiently.
It remains to be seen, however, if Rona’s next CEO will want to press on with that strategy. The decision will be up to Mr. Dutton’s successor, according to multiple sources.
The question is, however, whether Rona’s impatient institutional shareholders, some of which openly fantasize about a takeover, will – as the board hopes – wait long enough for the retailer to bounce back.
With news of Mr. Dutton’s departure came renewed speculation that Lowe’s would return with an acquisition offer that would be more formal than the $1.8-billion proposal the American chain floated last summer.
But Quebec Inc. won’t let Rona go easily. The Caisse refuses to speculate publicly on what it intends to do, should Rona receive an unsolicited offer. However, the Parti Québécois government is not so shy about its willingness to oppose a foreign takeover of Rona.
News of the bid for Rona at the onset of the last election prompted a swift reaction from then-finance minister Raymond Bachand, who declared the retailer to be of “strategic interest” to Quebec. And the PQ will not stand to be outsold by the Liberals on the nationalist front. In fact, in Quebec’s new National Assembly, “Don’t touch Rona” may be the only thing MNAs of all political stripes agree about.
Though he is working almost night and day to prepare the province’s next budget, Finance Minister Nicolas Marceau is following the situation closely, said his press officer.
Behind the scenes, however, the government is exploring different scenarios to give Rona a chance of proving its detractors wrong, according to a government source. Because the Caisse is technically at arms length from the government, Mr. Marceau is leery of asking the pension fund manager to intervene, as his predecessor did by pushing the Caisse to step in to prevent Rogers Inc. from acquiring cable operator Vidéotron. The province could, however, acquire Rona shares through its investment arm Investissement Québec. Another option is to change the Quebec law on companies to give boards more time and means to respond to unsolicited offers. But pushing this law through the National Assembly by a minority government that has a long legislative menu may prove difficult.
Conceding the sale of Rona to American interests while asking Lowe’s to guarantee jobs and spending in Quebec is considered a last resort. That is what happened when Loblaw Cos. Ltd. bought the Provigo grocery chain in 1998. At the Caisse’s request, Loblaw had to promise to maintain its $2.6-billion in annual spending, a figure that was verified by an independent accounting firm.
Mr. Dutton’s successor may not have 20 years to restore Rona’s lustre as an independent company. But if Quebec has its way, the next CEO will have a fair shot.