Lowe's Pitch to Acquire Rona Seen Succeeding This Time Aroundby
Board, Caisse, government positive on deal for Quebec firm
`Losing too many companies,' government opposition leader says
The fact both boards agreed to the C$3.2 billion ($2.3 billion) offer, along with Lowe’s commitment to preserve head-office jobs and maintain supply agreements, will likely seal the deal. Political conditions in Canada’s second-most populous province also favor the acquisition after helping to scupper a hostile offer in 2012.
Rona’s biggest shareholder, the provincial pension fund manager Caisse de Dépôt et Placement du Québec, said Wednesday it would tender its shares to the offer. Quebec’s new economy minister indicated the government probably wouldn’t stand in the way of a deal.
“If three of the groups that were against Lowe’s last time -- the board, the government and the Caisse -- are saying it’s a good idea, it would be hard to see it not get the green light,” Karl Moore, a management professor at McGill University’s Desautels Faculty of Management in Montreal, said in a telephone interview. “There’ll be some squawking for sure, but that’s predictable. The opposition has to be against this deal in principle.”
Who controls Rona is a sensitive issue in Quebec because some companies that were based in the province, such as aluminum maker Alcan Inc., grocer Provigo Inc. and Montreal Exchange Inc., saw their local footprint shrink after being acquired in the last two decades. Under Rio Tinto Group ownership, Alcan lost some of its decision-making powers to its parent’s London headquarters, said Moore.
“We are losing too many companies,” Pierre Karl Peladeau, head of the opposition Parti Quebecois, told reporters Wednesday in Quebec City after urging Premier Philippe Couillard to block the sale of Rona. “We are losing too many head offices. That’s now how we are going to enrich Quebec, quite the contrary.”
The federal government will review the deal for competitive concerns.
Mooresville, North Carolina-based 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 with a majority, the economy has slumped and the currency has plunged, making it cheaper for Lowe’s to offer a richer premium. The Canadian dollar has dropped to 72 cents versus the U.S. dollar, compared with parity when Lowe’s pulled its bid.
Economy Minister Dominique Anglade, named to the post last week, called Lowe’s commitments ”reassuring.” Anglade plans to meet the head of Lowes’s Canadian unit, Sylvain Prud’homme, in the next few days to review guarantees in terms of banners, jobs and the supplier network, she said.
“This isn’t a hostile takeover, this isn’t 2012,” Anglade said in a telephone interview from Quebec City. “In this context, we have to safeguard the interests of all Quebeckers as much as possible. We must also realize that many Quebec companies have done deals abroad, and that there are times when foreign companies will come here to do acquisitions.”
Under the terms of the deal announced Wednesday, Rona stores will continue to operate under their current brands, and Lowe’s will move its Canadian headquarters to the Montreal suburb of Boucherville, where Rona is based. Lowe’s also pledged to retain the "vast majority" of current employees and to continue Rona’s local procurement strategy in the French-speaking province.
“The encouraging part is that there aren’t many people in North Carolina that speak French,” McGill’s Moore said.