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Robert Dutton, president and chief executive officer of Rona Inc. speaks during their annual general meeting in Boucherville, Quebec, May 9, 2012.


After spurning a takeover overture from U.S. rival Lowe's Cos., home improvement retailer Rona Inc. has parted ways with its leader of two decades as it struggles to find a path to improved profitability.

In a surprise move on Friday, Rona announced that Robert Dutton was stepping down as chief executive officer after the Boucherville, Que.-based chain released poor third-quarter results that saw profit tumble 89 per cent to $5.1-million.

Rona's board of directors decided on Tuesday to oust Mr. Dutton in a bid to "boost" the tired retailer, a company insider said. Even so, the CEO led a conference call the following morning to present the retailer's results.

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Michael Sabia, CEO of the Caisse de dépôt et placement du Québec, Rona's largest shareholder, made it known to Rona's board that he was unhappy with the retailer's latest report card, according to a Caisse source.

"It's about time – the board finally had enough," said Norman Levine, managing director of Portfolio Management Corp., which owns shares in Rona but unloaded half of them in the summer after Rona rejected Lowe's $14.50-a-share informal offer. "These are two companies that need each other. Lowe's needs Rona to get the growth they need and Rona is flailing."

The door is now open to the possibility of Lowe's returning with an offer to acquire Rona. But the terrain is still rocky as the Parti Québécois government remains opposed to the U.S. retailer taking over what the predecessor Liberal regime in Quebec called a strategic Canadian asset.

On Friday, Rona investors signalled they anticipate a takeover or at least better days for the retailer. Its shares jumped 8.2 per cent to close at $10.12 on the Toronto Stock Exchange. And while Lowe's hasn't talked to Rona since the U.S. chain withdrew its offer in September, it is still interested in a friendly deal, sources said.

Lowe's takeover proposal sparked a huge political uproar in the summer in the midst of the Quebec election campaign, when the then-Liberal government came out against it and the Parti Québécois, which won the electoral race, echoed the sentiment. Sources said that today's PQ government is steadfast in its opposition to a Lowe's deal, despite Rona's poor financial performance.

Todd Johnson, portfolio manager at BCV Asset Management who personally owns Rona shares, said "some sort of arrangement with Lowe's would be attractive." But realistically, given the provincial government's stance, Rona will probably go no further than replacing the top job with a seasoned CEO to implement its strategy. "I think it's a long road ahead for Rona."

Under Mr. Dutton, who had been with the firm for 35 years – the last 20 as CEO – Rona had been shifting to smaller stores, closing or downsizing some of its biggest outlets. While Lowe's has struggled in Canada, with only 32 stores in four provinces today, compared to Rona's more than 800 large and small shops, industry giant Home Depot has revitalized its operations and made gains.

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The Caisse believes Rona has to focus now on improving its performance, said spokesman Maxime Chagnon. On July 31, when Rona disclosed the Lowe's offer, the Caisse bought more shares in the Quebec retailer, at an average $14.16 apiece, raising its holding to 14.2 per cent from about 12.

Rona chairman Robert Pare met with head office staff on Friday morning, telling them that it was business as usual for now, sources said. But they also said that under a new CEO, the retailer's strategy could change. The company has hired executive search firm Korn/Ferry to help find a new boss.

The recruitment of a new leader – and the time it will take for the person to get up to speed – could take another 12 to 18 months, said Irwin Michael, president of I.A. Michael Investment Counsel, whose funds own Rona shares. The Rona board should talk to Lowe's if it's still interested in doing a deal, Mr. Michael said. Rona can work at negotiating guarantees of jobs and suppliers remaining in Canada, he said.

"Our great disappointment with the board was they just kiboshed any discussion" with Lowe's, he said."They owe that to shareholders to at least have discussions."

Meanwhile, the Standard & Poor's and DBRS ratings agencies both warned that they might lower the rating of the Caisse were the province take action to reduce the pension fund's independence; there has been discussion about the Quebec government using the Caisse to block unwanted takeovers.

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About the Authors
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More

Chief Quebec correspondent

Sophie Cousineau is The Globe and Mail’s chief Quebec correspondent. She has been working as a journalist for more than 20 years, and was La Presse’s business columnist prior to joining the Globe in 2012. Ms. Cousineau earned a master’s degree in journalism from the University of Illinois and a bachelor’s degree in economics and political science from McGill University. More


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