(Bloomberg)—Lowe’s Cos. agreed to buy rival Rona Inc. for C$3.2 billion ($2.3 billion) in cash to create one of Canada’s biggest home-improvement retailers, almost four years after its earlier takeover proposal got rebuffed.
Lowe’s, No. 36 in the Internet Retailer 2015 Top 500 Guide, will pay C$24 per share, it said in a statement, more than double yesterday’s closing price of C$11.77. It agreed to pay C$20 for the Boucherville, Quebec-based company’s preferred shares.
The boards of both companies approved the planned transaction, along with the company’s biggest shareholder, Quebec pension fund Caisse de dépôt et placement du Québec.
Rona has had an overhaul since the last time it was approached with a takeover offer, including improving its operations by closing several unprofitable stores, management of Mooresville, N.C.-based Lowe’s management said.
The biggest change is that the transaction that is supported by both boards and management, said Robert Niblock, Lowe’s chief executive officer.
“That’s different than obviously was the case back in 2012,” Niblock said on a conference call. He added that Lowe’s has had no interaction so far with Rona’s major shareholders, including the Caisse, which holds 17% of the company, according to data compiled by Bloomberg. The transaction is expected to close in the second half of 2016, the companies said.
Savings identified
Lowe’s, the world’s second-largest home-improvement chain, already has a Canadian division with about 40 stores and more than C$1 billion in revenue. Adding Rona’s roughly 500 locations will create a unit with C$5.6 billion in sales. Lowe’s had an Internet Retailer-estimated $1.27 billion in online sales in 2014, according to Top500Guide.com data.
The deal, which Rona’s management had rejected in 2012, will allow Lowe’s to capture a greater share of Canada’s growing home-improvement industry, valued at more than C$45 billion, Niblock said.Lowe’s has identified more than C$1 billion of opportunities to further increase revenue and operating profitability in Canada, where it could double operating profitability in five years, according to the statement.
The biggest growth opportunity for Lowe’s is in Quebec, where the U.S. company lacks any presence and accounts for about 25% of the Canadian home-improvement market, management said. Rona has 87 corporate stores in the province, and another 151 dealer-owned stores there and is the market-leader in the province. It has 496 stores in total across Canada.
Richer premium
“For Lowe’s specifically, the transaction provides a transformational step forward to advancing our growth plans in Canada,” Niblock said. The major hindrance to its expansion in the country since it started growing there in 2007 has been access to suitable real estate, he said.
Lowe’s withdrew a $1.8 billion unsolicited bid for Rona more than three years ago after the board and some Quebec politicians opposed the offer, concerned about a loss of jobs and control of the Quebec-based retailer. The withdrawal came just 12 days after the separatist Parti Quebecois won elections.
Since then, the Liberals have taken power in Quebec, the economy has slumped and the currency has plunged, making it cheaper for Lowe’s to offer a richer premium.
Minister ‘reassured’
”What’s important for us is to ensure that the commitments that are made are serious and respected,” Quebec Economy Minister Dominique Anglade told Canada’s Ici RDI television in an interview. She said she briefly talked with Lowe’s Canada President Sylvain Prud’homme yesterday, and came away “reassured.” ”We must make sure that this deal will benefit all Quebeckers, all suppliers, and that the value chain will be reinforced in Quebec.”
Parti Quebecois Leader Pierre Karl Peladeau, who heads the official opposition in the provincial legislature, criticized the deal in Twitter messages, saying it would impoverish Quebec. Rona buys about half of its supplies in the province, he said.
Lowe’s said it’s making several commitments to Rona, including maintaining its Canadian base in Boucherville, keeping the Rona store banners and retaining “the vast majority” of current employees.
CIBC World Markets Inc. and RBC Capital Markets advised Lowe’s. Stikeman Elliott LLP served as legal counsel to Lowe’s in Canada, while Hunton & Williams LLP did so in the U.S. Scotia Capital Inc. was Rona’s financial adviser and Norton Rose Fulbright Canada LLP its legal counsel.