Lowe’s Cos. Inc. chief executive officer Robert Niblock has yet to speak publicly about his company’s unsolicited $1.8-billion proposal to buy Quebec-based rival Rona Inc. since it was unveiled on July 31.
But on Monday, investors may finally hear Mr. Niblock’s take on Lowe’s “expression of interest.” He will participate in the company’s analyst conference call after it releases its second-quarter results.
So far, Lowe’s takeover attempt seems to be stalled, hurt by the timely move by Rona of disclosing the proposal the day before a Quebec election call.
From Day 1, the takeover battle took on strong political overtones in a highly charged, nationalist-prone province. Rona’s board of directors rejected the proposal and the Liberal government promptly backed Rona’s stance, alleging the acquisition would result in local suppliers losing business to U.S. vendors. The powerful Caisse de dépôt et placement du Québec, which is Rona’s largest shareholder, raised its stake in the retailer, appearing to be anti-Lowe’s, although on Friday its position became unclear after Caisse CEO Michael Sabia declined publicly to take sides.
Here are questions for Mr. Niblock:
1.What would Lowe’s do with all those Rona stores, which come in all shapes and sizes, some corporately owned and others owned by the shopkeeper?
Lowe’s, which runs only 31 big-box stores in Canada compared to Rona’s nearly almost 800 outlets, says it would be business as usual at Rona if its takeover bid were successful. And it says it was planning to roll out a smaller-store format itself, with or without Rona. But Lowe’s lack of experience with smaller outlets in North America raises questions about its intentions: Would it eventually close some stores or spin off others?
2. Couldn’t Lowe’s have picked a better time to make its acquisition proposal?
Lowe’s seems to have chosen the worst time to pursue its bid. Quebec nationalism is strong in the heated provincial election race. Still, Lowe’s says that takeover talks aren’t new for Rona. The acquisition ball got rolling about a year ago when the CEOs of the two retailers first met at Rona’s request, according to Lowe’s. It sent an offer to Rona’s board last December, which was rejected. On July 8, Lowe’s sent another letter to Rona expressing its interest. Since then, election momentum built up.
3. Do you have enough support among Rona shareholders to make the deal work?
On July 31, Lowe’s said it had the support of institutional shareholders holding 15 per cent of Rona stock. Since then, the U.S. retailer has tried to win over more shareholders. Most takeover offers need a two-thirds majority to get the shareholders’ nod, although a hostile bid requires 90-per-cent approval for full control. Already, Invesco Canada Ltd., the second-largest Rona shareholder with 12 per cent of the stock, has confirmed it is a loyalist of Lowe’s, which itself has bought up some Rona shares. But Rona perhaps has garnered even more support: Rona’s store owners, who are estimated to hold roughly 10 per cent of the shares, are expected to mostly back their board. The Caisse, with 14 per cent of Rona’s shares, also is anticipated to be in the Quebec retailer’s camp.
4. What’s the strategy now?
Lowe’s may just want to lay low until after the Sept. 4 election in Quebec. All three of the main parties have questioned the U.S. retailer’s intentions, suggesting that it will eventually shift its supplier base to U.S. sources. Lowe’s is adamant it has no such plans.
5. How much is Rona really worth to Lowe’s?
Many Rona store owners (dealers) fear Lowe’s would bring its U.S.-style, big-box culture to Rona. They don’t want a large U.S. company dictating how they should run their operations. Yet some dealers who oppose Lowe’s current $14.50 a share proposal, privately say they would view it differently if the U.S. retailer raised it to $18 a share. As one Rona hardware store owner who owns 20,000 shares and opposes the proposal, put it recently: “I have three kids who have to go through college. … It won’t go for less than $18.”