The Quebec government, through its investment arm, could buy shares in Rona Inc. and head up a united front of shareholders who want to play a role in countering the unsolicited $1.8-billion takeover bid from U.S. retailing giant Lowe’s Cos Inc., says the province’s finance minister.
Rona, the Boucherville, Que.-based home-improvement retailer, is a strategic Canadian asset that must be protected from foreign ownership, Raymond Bachand said on a conference call Tuesday, after the announcement earlier in the day that Rona had rebuffed Lowe’s offer.
“As one of the biggest distributors and retailers in Canada, I think [Rona] represents an important strategic interest,” Mr. Bachand said, referring to the tens of thousands of employees as well as hundreds of Canadian manufacturers and suppliers who sell their products to Rona.
He also warned that promises made by foreign entities to maintain head offices and purchasing levels in the country of the takeover target have a tendency to fade over the long term as pressure grows to rationalize and consolidate operations.
Mr. Bachand stopped short of saying his government – through Investissement Québec – would try to block a formal offer from Lowe’s.
“To call that one I think it’s a little early,” he said.
“Investissement Québec could certainly buy some shares and lead a small coalition of people who want to take part” in the takeover play, he said.
But he insisted that Quebec is not playing the card of economic nationalism.
“It’s not an ideological question. It’s a very pragmatic question,” he said about the need to prevent the further “hollowing out of Canada.”
Meanwhile, the powerful Caisse de dépôt et placement du Québec said it has boosted its 12.18-per-cent stake in Rona to 14.18 per cent by buying over 2 million shares at an average price of $14.1670 per share.
It did not provide a reason for the increased investment.
Lowe's offer comes after years of speculation that the marriage of the two retail players made sense in the crowded Canadian sector.
The Montreal-area company said on Tuesday the $14.50 a share offer from its American rival would not be in its shareholders’ best interest and Rona will be looking at other options.
Rona received the proposal nearly a month ago, on July 8, and told Lowe’s on July 26 that it was rejecting the advance.
Lowe's confirmed the proposed bid, and said it already has the support of institutional shareholders that own about 15 per cent of the stock.
Doug Robinson, head of international operations for Lowe’s, said in an interview that the U.S. retailer’s CEO first met with Rona’s CEO at the latter’s initiation last July in Montreal to discuss “strategic options” for the two companies.
They met again 30 days later and, by December, Lowe’s sent a proposal for a friendly acquisition of Rona to its board of directors, which the Quebec retailer rejected in early January, Mr. Robinson said. The December proposal offered a range of values, and was “slightly” below today’s $14.50 a share proposal, he said.
He said that Lowe’s, which now has just 31 stores in Canada, has responded to some of Rona’s concerns by ensuring that its head office will remain in Boucherville, Que., with no jobs being lost in the province, if the takeover took place.
“We think this is absolutely in the best interests of Canada and Quebec and the business overall,” said Mr. Robinson, who once headed up the Canadian division. “It creates a very strong and vibrant business that offers great value to its customers throughout Canada. It offers great employment opportunities [and] security of long-term employment for employees.”
He said the current offer is simply an expression of interest and not a formal offer. “We are looking for a way to engage the Rona board of directors in a productive discussion about how to create a transaction – create a proposal – that they can support,” Mr. Robinson said.
Mr. Robinson said Lowe’s wants to buy all of Rona – both big-box and smaller stores – because it feels having both formats makes sense in today’s market. Lowe’s only runs superstores in its U.S. home base, but has smaller outlets in its businesses in Australia and Mexico, he said.
“We really like the Rona formats – multiple different formats – we think it makes enormous sense here in Canada,” Mr. Robinson said. “We can bring some efficiencies and scale and programs and services that previously they didn’t have access to at Rona.”
For Lowe's, the takeover is important not only to give it scale in Canada, but also to provide it with stores in Quebec, where it currently does not operate, he said. “We think it is a combination that just makes a lot of sense to everyone.”