After dancing around the speculation for the past few years, Lowe's Cos. Inc. has made official its desire to own Rona Inc. What's less clear, at first glance, is why it wants to buy the whole company.
The two retailers have aisles of hardware in common, but there's a major difference between them: the American firm operates big-box stores, including about 30 in Canada, while Rona's 950 locations are a mishmash of sizes – some of which are company-owned while others are franchised or "affiliated," sometimes under family names.
So when Rona announced its "New Realities, New Solutions" strategy that will see the company close or downsize a number of unproductive big-box stores – primarily in Ontario – it opened a window for Lowe's to jump in and scoop up that real estate.
But that, it appears, was not enough to satisfy Lowe's. And the reason may be Quebec.
Swallowing the whole company could very well be beneficial for Lowe's thanks to valuable stores in that province, which are the most profitable and are also located in a region in which Lowe's has no presence at all. Given how closely Rona has guarded its home province, Lowe's may only be able to access that territory by way of an outright acquisition of the entire firm.
Company records from 2011 show that Quebec accounts for 45 per cent of the company's sales. That far outstrips the 24 per cent that comes from Ontario and the 29 per cent being pulled in from Western Canada. Those figures give some indication as to why Lowe's might feel taking on all of Rona is worthwhile, especially if it was already looking to pick up some of its Ontario stores.
The Quebec provincial government's hostile reaction to Lowe's supports the theory that Quebec is a crucial battleground in the saga: Quebec Finance Minister Raymond Bachand stepped in to say the deal isn't good for the province, and suggested the government might help the struggling hardware giant defend itself.
For now, Lowe's has been firmly rebuffed. But its takeover plans haven't been extinguished. Though Rona asked Lowe's not to go hostile, the American retailer responded on July 28 that it "remained very interested in pursuing a transaction with Rona and was going to consider all of its options."
Rona's largest shareholder, the Caisse de dépôt et placement du Québec, announced on Tuesday afternoon that it bought another 2.43 million shares of the company, increasing its ownership by 2 per cent to more than 14 per cent of the stock. The share price also soared, though at $13.50, it remains $1 below Lowe's proposed takeover price. It seems that whichever way the conflict gets hammered out, Rona investors – and everyone else – are settling in for a long fight.