The Lowe's home improvement chain is aiming to buy Quebec-based Rona Inc. for $3.2 billion cash in a friendly deal supported by the directors and management of both companies.
Lowe's sees Rona as a way to quickly become Canada's leading home-improvement retailer and make its first foray into Quebec, which accounts for nearly a quarter of the national market and where Rona is currently the leader.
Rona's board and management see the deal as a way to tap into Lowe's strength as a U.S.-based, multinational company while preserving its brand, business relationships and most of its current operations
"Overall, it's a win-win for both companies," Robert Niblock, Lowe's chairman and CEO, told analysts in a conference call after the announcement.
Niblock said the Canadian home improvement market is currently worth more than $45 billion and growing. Lowe's estimates a compounded average growth rate of 3.9 per cent between 2014 and 2018.
"We also like the market because of its long-term fundamentals, with its high level of home ownership and well-developed distribution infrastructure."
Niblock and other Lowe's executives also told analysts that Rona has made a number of improvements in the four years since the two companies came close to a similar takeover agreement before the attempt failed in the face of opposition from the Quebec government of the day and a large number of Rona's independent dealers.
"We believe the time is right to take the next step in the evolution of the Rona family," Rona chairman Robert Chevrier said in a statement Wednesday morning ahead of a separate conference call planned later in the morning.
"The team at Lowe's has presented us with an excellent plan that enables our company to maintain its brand power while at the same time leveraging Lowe's global presence to build upon and expand our reach."
Chevrier also said that Lowe's has made commitments to the Canadian company's employees, suppliers and independent dealers.
The Montreal-area company employs about 17,000 people directly across Canada and its affiliated dealers employ a further 5,000.
For shareholders, Lowe's (NYSE:LOW) is offering $24 cash per share of Rona (TSX:RON) -- about double what the stock was worth at the end of trading on Tuesday before the announcement. The publicly traded shares soared Wednesday to just below the offer price with nearly nine million traded in less than an hour after the market opened.
The Caisse de depot pension system, a large and influential investor in Rona, announced separately that it intended to tender its shares to Lowe's.
"Overall, la Caisse believes the transaction will result in equal or superior economic activity generated by the Rona banners in Quebec," the Montreal-based fund manager said.
Lowe's already has a presence in Ontario and other parts of Canada, but its network of 42 stores trails Rona and U.S.-based Home Depot. In the United States, Lowe's is the No. 2 home improvement retailer after Home Depot (NYSE:HD).
In total, Rona has nearly 500 stores owned by the Montreal-area company and independent affiliated dealers across Canada.
Rona's corporate stores come in three main formats spread across most geographic regions: 87 in Quebec, 72 in the West, 63 in Ontario where Lowe's Canada has its biggest presence, and 14 in the Atlantic region. Rona also has nine distribution centres and a head office in Boucherville, Que., in the South Shore region near Montreal.
