U.S.-based home improvement retailer Lowe’s is set to purchase Rona, one of its biggest competitors in Canada.
It was announced today that the boards of both companies unanimously accepted the friendly takeover in a transaction valued at $24 cash per share (double what it was worth at the end of trading on Tuesday), or $3.2 billion. The deal still requires regulatory approval in Canada and the U.S.
Rona, headquartered in Boucherville, Quebec, has roughly 800 locations across Canada, a mix of corporate-owned stores and franchise locations. Lowe’s operates over 1,700 stores across North America, though only 41 of those are located in Canada. The deal will significantly increase Lowe’s footprint here, especially in Quebec.
Lowe’s says Rona’s Boucherville head office will now become the head office for Lowe’s Canada and will maintain Rona’s multiple retail banners, and has made a commitment to keep “the vast majority” of its current employees and key executives.
“Both Rona and Lowe’s had a problem and the problem was called Home Depot,” says retail consultant Ed Strapagiel. “I think [the deal is] going to certainly create, for Home Depot, a whole new, larger, more formidable competitor, particularly in terms of volume and economies of scale.”
Though the terms of the deal are almost more like a merger, in that the two brands will remain separate, the combined operation will give Lowe’s and Rona more buying clout with vendors and suppliers in the market, he notes.
“I don’t think that Home Hardware will be too much affected,” he says of another renovation chain here. Home Hardware, which recently realigned its marketing department, has a greater strength in smaller towns and is not primarily a big box operator. “Home Hardware has already made some inroads in Quebec and they are competing successfully with the established Rona operations there,” he adds.
Overall, the biggest benefit for Lowe’s is being able to get into the Quebec market and expand its Canadian presence more easily than it could by just opening new stores under its banner, Strapagiel also says.
Lowe’s previously made an attempt to purchase Rona in 2012 for $1.2 billion, or $14.50 a share. Though that takeover attempt was categorized as friendly, it faced several hurdles, including coolness from Rona’s management, opposition from the owners of nearly 200 franchised locations and outright hostility from what was then the provincial government of Quebec.
Rona management eventually rejected the bid because of those factors, and Lowe’s response to the rejection, pointing to the percentage of shareholders who supported the deal, led some to believe a hostile takeover was imminent, though a bid never materialized.
Rona’s creative and media agency partner is Sid Lee.
With files from Harmeet Singh
