With no patience left, Rona Inc.’s two largest shareholders are taking matters into their own hands, installing a turnaround expert who is familiar with reducing costs to lead the board of directors.
The hardware retailer named Robert Chevrier as executive chairman, replacing Robert Paré, a Montreal lawyer who took the chairman’s role in May, but who had little retail or operational experience.
Mr. Chevrier made his name as a turnaround specialist after he straightened up Westburne Inc., a money-losing distributor of electrical equipment that was sold in 2000 to the French group Rexel. His title – executive chairman, as opposed to chairman – has real meaning: The 69-year-old executive plans to focus on Rona’s operations over the coming months, and has quit his existing post as chairman of Richelieu Hardware to focus on his new task.
Under his watch, Rona plans to downsize to profit and to cut loose underperforming businesses.
“I see some interesting avenues for a quick return to profitability, but it is going to hurt,” Mr. Chevrier said in a phone interview. “We are going to look at staffing levels and there are going to be layoffs.”
Rona employs close to 30,000 employees; it is the largest Canadian hardware retailer and is a specialized distributor of products for the construction industry.
The company’s boardroom changes – it brought in five new directors, including Mr. Chevrier – also bought peace with institutional shareholders who were angry with its leadership after years of lacklustre results. Many of these shareholders had hoped that Rona’s board would have considered an outright sale of the company instead of rebuffing Lowe’s Cos. Inc.’s $1.8-billion takeover proposal, which was unveiled last summer at the onset of the Quebec elections. When Lowe’s withdrew its proposal, the second-largest shareholder, Invesco Canada Ltd., threatened a proxy war to sweep out the board.
The Caisse de dépôt et placement du Québec, Rona’s biggest investor with a 14.2-per-cent stake, was the “catalyst” in recruiting Mr. Chevrier, its spokesperson Maxime Chagnon said. “To improve Rona’s performance, we have decided to get involved with its board and play an active role, though this should not be construed as activism,” Mr. Chagnon said.
“It was a situation of the two largest shareholders in the company finding common ground and putting in a new board to take a fresh look at the company,” said Ian Hardacre, head of Canadian equities at Invesco, which owns about 10 per cent of Rona. “We agreed on people we [Invesco and the Caisse] are both comfortable with.” The pair have agreed to support the full slate of director nominees at the next shareholders’ meeting in May.
Besides Mr. Chevrier, four new executives will join Rona’s board: Bernard Dorval, deputy chair at TD Canada Trust; Wesley Voorheis, partner at Voorheis & Co. LLP and managing director of VC& Co. Inc.; Guy Dufresne, a director that previously presided over ArcelorMittal Mines Canada Inc.; and Barry Gilbertson, principal with Barry Gilbertson Consultancy.
Mr. Paré said in a news release that these four directors bring a “more diverse geographic representation.” Rona has come under fire for having little representation from outside Quebec, despite its status as a national retailer. Two existing board members, Alain Michel and Patrick Palerme, resigned.
Mr. Voorheis has previously acted as a consultant to Invesco regarding its investment in Rona. However, none of the new board members specifically represent Invesco’s or the Caisse’s interests.
Now that Rona has renovated its board, the Boucherville, Que., company still needs to pick the CEO that will implement Rona’s new business plan. For Mr. Hardacre, the priority is rebuilding shareholder value and getting Rona back to profitable growth – not selling the company.
Fund manager Irwin Michael said the agreement between the Caisse and Invesco should help avoid a potentially nasty set-to with shareholders over the renewal of the board.
The fact that the Caisse and Invesco are working together indicates that the giant provincial pension fund manager is keen to find the best solution to Rona’s problems and may not necessarily block a sale if the board determines that is the best strategy, Mr. Irwin believes.
The Caisse has sent mixed signals about its intentions in the Rona file, after the Quebec government said it was opposed to a sale to a foreign buyer.
“The concern of Quebec Inc. is not a concern here. This benefits the company, the shareholders and the whole marketplace,” said Mr. Irwin, whose ABC funds own the third-largest stake in Rona.
Rona also said on Monday that it has hired a consulting firm to “accelerate progress on its strategic priorities announced in December.”
Rona will make clear what businesses it intends to sell and what it intends to keep when it reports its next financial results in February. Dominique Boies, the chief financial officer that has been acting CEO since Mr. Dutton’s departure, believes Rona must simplify its business model. The company intends to exit businesses that are underperforming or lack scale.
Mr. Boies mentioned that big-box stores in Ontario were not doing as well as hoped. Selling those stores to Lowe’s might satisfy the American retailer’s interest in Canadian expansion, while allowing Rona to remain independent.
“It is part of the scenarios,” Mr. Chevrier said. “But we are looking at four or five of them, including closures [of stores] as there is overcapacity in the Ontario market. And Lowe’s is not the only party which could express an interest in those stores.”
“But whatever we will do, he added, we will do it quickly.”