In a breathtaking example of sticking his nose where it does not belong, Quebec Finance Minister Raymond Bachand says a potential purchase of hardware retailer Rona by Lowe’s is not in Canada or Quebec’s interest. Furthermore he is floating the idea of creating some form of investment fund to block this merger and to “protect Quebec’s interests.”
Investors around Canada must be asking themselves: “What possible justification can the finance minister of Quebec have in opposing this transaction?”
The two most common objections Canadians have to mergers are loss of control over natural resources and national security concerns. How does a deal possibly harm either of these? Are we worried about depleting our national hammer reserve? Do we lose sleep at night worrying that the Russians might get their hands on top-secret Garden Weasel technology?
As an economist, my concern with any merger or acquisition is that the combined firm would have excess market power which it would use to monopolize the market. That hardly seems a concern in the retail hardware business with Home Depot, Lowe’s, Home Hardware and Canadian Tire all competing for the same consumer dollars. And if there is any lesson to be learned from the supply management debate, it is that consumer welfare is of secondary importance to governments.
Canadian governments need to stop treating shareholders as mindless rubes who get fleeced in every transaction. There is absolutely no justification for the Quebec government to be involved in this transaction; Mr. Bachand should focus his attention on reducing Quebec’s alarming debt-to-GDP ratio.
Mike Moffattis an Assistant Professor in the Business, Economics and Public Policy (BEPP) group at the Richard Ivey School of Business – Western University
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