Caisse remains coy on Lowe’s bid for Rona

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The Caisse de dépôt et placement du Québec continued Friday to give mixed signals about its intentions regarding a hostile bid for Quebec home improvement retailer Rona Inc. by American giant Lowe's Cos. Inc.

"I would say it's an open file and given [that], we're not going to … show our cards one way or another," chief executive Michael Sabia told journalists on a conference call to discuss first-half results from the Caisse, which manages money on behalf of Quebec pension and insurance funds. "We'll see how events unfold."

After Rona said on July 31 that it had received an unsolicited acquisition proposal for $14.50 a share from Lowe's, the Caisse announced it had upped its equity stake in Rona to 14 per cent from 12 per cent and stated its actions would be guided by a slew of seemingly contradictory criteria.

On the one hand, the Caisse said it was looking to create value for its depositors. But it also highlighted the importance of keeping Rona's head office in Quebec, of developing its supplier network in Quebec and across Canada and of supporting the role of franchisee entrepreneurs under the Rona banner. That suggests the Caisse equally supports an outcome that puts the economic interests of Quebec at the forefront.

Mr. Sabia wouldn't say Friday if the Caisse would support a takeover for the right price, or was opposed outright to a sale. "I'm not going to answer a hypothetical question," he said. "The issue here is there's value that needs to be created, there's performance that has to be delivered. I'm not going to be drawn into...what is essentially a political question. We're investors and we manage ourselves accordingly."

The Caisse's murky positioning emerged last month as Quebec politicians, including finance minister Raymond Bachand, vowed on the eve of a provincial election call to block a sale of the Quebec retailer. That puts them at odds with Bay Street investors which came out in favour of a takeover, saying Rona's management team had poorly run the company for years.

At the same time, the Caisse has made concerted efforts to show it can honour both parts of its mandate, forged in the Quiet Revolution five decades ago, to deliver solid investment returns and support the Quebec economy. That dual pursuit has led the Caisse into some ill-advised and costly investment decisions over the years.

The Caisse posted a 3.5 per cent return on its portfolio in the first half of the year, slightly behind its benchmark index. Mr. Sabia pointed out the Caisse had earned an average 10.5 per cent return over the past three years, ahead of its benchmark of 8.9 per cent, while investing $7-billion to support the expansion of Quebec companies.

But he refused to answer questions about the mandate of the Caisse, which front-runner Pauline Marois of the Parti Quebecois has said should play an even greater role in Quebec. While stating the Caisse acted independently of the government and took its own investment decisions, Mr. Sabia wouldn't answer a question on whether the Caisse was over-weighted or under-weighted in the size of its investments in Quebec, saying only it would continue to support Quebec companies "because that's the right thing to do."

With Friday's results, the Caisse also lost its long-standing position as Canada's largest institutional investor. The Canadian Pension Plan Board now holds that spot, with $165.8-billion in assets as of June 30 – $100-million more than the Caisse.

The Caisse also said it had sold a 5.6 per cent stake in BAA, the company that owns Heathrow Airport, to Qatar Holding LLC for $394-million, reducing its share in the airports operator to 15.6 per cent. The Caisse originally bought a 28 per cent stake in BAA for £1.2-billion in 2006. Mr. Sabia said the sale would diversify the Caisse's infrastructure portfolio, which had been "quite heavily concentrated" on BAA.