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A Rona store in Edmonton.

Lowe's Cos. has backed down from its $1.8-billion offer for Rona Inc. after it was rejected by the board, but for shareholders of the struggling Canadian home-improvement retailer, the battle is just beginning.

Rona now faces mounting pressure to produce results quickly, as long-suffering shareholders grow ever frustrated with the company's long stretch of lacklustre earnings and stock price performance. Shares sank 11.6 per cent Monday after Lowe's pulled its lucrative $14.50-a-share offer, explaining it has "repeatedly attempted to engage the board of directors of Rona" but could not move forward with a "friendly, negotiated transaction."

For shareholders who watched Rona's earnings decline for five successive years up to 2011, the company's time is up to produce a viable Plan B.

"Given Rona's track record of the past five years, it's in no position to recommend another strategic plan as the path to shareholder value creation," said Richard Fortin, portfolio manager at Bissett Investment Management, whose Bissett Small Cap Fund owns about 2.5 million Rona shares. Mr. Fortin also took aim at what he described as Rona's "absentee board," on which eight of 12 directors own 10,000 Rona shares or less. "This does not constitute alignment with shareholders' interests, as far as we're concerned," he said, adding that he and other investors aren't ruling out seeking some form of "recourse."

Shares of Rona closed at $11.29 on the Toronto Stock Exchange Monday, about where they were trading before Lowe's publicly confirmed its approach to Rona's board in late July, and about half their value of five years ago.

"Shareholders will hold management's feet to the fire even more now," said Todd Johnson, portfolio manager with BCV Investment Management Inc.

Now the pressure is on Rona president and chief executive officer Robert Dutton to prove the retailer's strategy will pay off. Mr. Dutton has insisted that the Boucherville, Que.-based company's strategy to turn around its flagging business – rather than be sold – is the right path for investors. Rona is undergoing a transformation by closing some of its big-box outlets in favour of new, smaller formats that can respond quickly to shifting customer demands.

In the meantime, though, investors could take more immediate action.

Shareholder Norman Levine, managing director at Portfolio Management Corp., suggested that big shareholders could organize a proxy fight to try to oust the board.

"We are just the little guys," he said. "But it's the board of directors that is the impediment here. If they can replace the board of directors, then the company can be open to negotiations."

If Rona management and the board think they are doing a great job and can turn around the company, "they should be prepared to take the company private" at a price acceptable to other shareholders, he added.

Lowe's said in its announcement Monday that it "continues to believe that a combination of Lowe's and Rona would create significant value for shareholders," which some interpreted as a hint that the North Carolina home-improvment company might come back at a later date, possibly even with a hostile offer.

Lowe's spokesperson Chris Ahearn said the company wanted supportive shareholders to know the company's course of action. "We really wanted a friendly transaction. When it became apparent to us that it was not likely to happen with Rona's board, we had a number of shareholders who had been supporting the proposal all along. We felt that obligation to let them know that we did not intend to move forward which really freed them up to trade however they see fit. ...We needed to free them up to do whatever they wished with the Rona stock that they owned."

Keith Howlett, an analyst with Desjardins Securities, said in a note that Lowe's wants a deal with Rona before Rona closes, or shrinks, about 20 big-box stores located outside Quebec as it shifts to smaller, more service-oriented stores located close to residential areas.

"Lowe's would, in our view, like to convert many of these locations (as well as the other Rona big-box stores outside Quebec) to Lowe's," Mr. Howlett wrote, adding that "Lowe's will either now proceed with a hostile bid within three months" or ratchet up its competitive position in the Canadian retail landscape in order to further pressure Rona into negotiating a deal in two or three years A source familiar with the situation, however, said a hostile bid is not currently being contemplated.

BCV Investment's Mr. Johnson said Lowe's might at this point want to sit back and wait for Rona to begin shutting stores so it could then scoop them up.

Irene Nattel of RBC Dominion Securities said in a research note that Lowe's could return with another proposal. "Given a slowing Canadian housing market and outlook for sluggish consumer spending, we expect [Rona's] results – notably top line – to remain pressured and we would therefore expect a certain level of shareholder support for a transaction, at an appropriate price."

Another complicating factor for any deal: politics. The freshly elected nationalistic Parti Québécois is staunchly opposed to any foreign takeovers of major homegrown companies.

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