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Winnipeg Free Press - PRINT EDITION

Lowe's withdraws bid for Quebec-based Rona

By: Ross Marowits

Posted: 09/18/2012 1:00 AM | Comments: 0

MONTREAL -- U.S.-based Lowe's may not have ended its cross-border courtship of Rona Inc. despite abandoning its $1.8-billion bid for the home-improvement chain, industry experts believe.

Quebec-based Rona said Monday it learned through a news release its U.S. suitor had withdrawn its unsolicited, non-binding acquisition proposal, adding it continues to concentrate on its own efforts to rejuvenate the company.

"Our focus is on the implementation of our business plan based on the renewal of our offer to consumers. This focus remains," spokeswoman Valerie Lamarre said in an email.

Rona wants to improve its financial results after months of weakness.

The U.S. chain's withdrawal Monday will come at a cost to Rona investors, with Rona's shares dropping more than 11 per cent following the announcement that Lowe's is no longer contemplating an offer of $14.50 per share cash.

Rona stock closed down $1.48 to $11.29 in Wednesday trading on the Toronto Stock Exchange. Lowe's Companies Inc. shares (NYSE:LOW) slipped 17 cents to US$29.23 in New York.

Analysts say Lowe's may still have designs on Rona, if not by acquisition of the whole chain, then perhaps by adding big-box stores as Rona expands the number of smaller, proximity stores.

The U.S. chain's withdrawal comes seven weeks after Rona, the Quebec government and others objected to the overtures, which began privately in late 2011 and became public in July.

"Lowe's continues to believe that a combination of Lowe's and Rona makes business sense and would create significant value for all stakeholders," Lowe's said in a statement Monday.

The potential sale of Rona surfaced in the middle of a provincial election and prompted rare agreement between the Liberal government and the Parti Québécois about the strategic importance of the company and the need to preserve the headquarters in Quebec.

The political parties had even suggested changing provincial law to arm boards of directors with more power to veto foreign takeovers.

Pension-fund manager the Caisse de dép¥t et placement du Québec supported Rona by boosting its stake in the company by two percentage points to 14.2 per cent. It declined to say Monday whether it will apply additional pressure on Rona to improve its results.

"The Caisse is a long-term investor and we're convinced that this company has considerable potential for improvement and of course, by improving its performance, this will consolidate its position," spokesman Maxime Chagnon said.

Irene Nattel of RBC Capital Markets said the move by Lowe's gives Rona some breathing room, but isn't necessarily the end of the story.

"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," she wrote in a report.

Keith Howlett of Desjardins Securities said the "friendly" phase of the takeover process is suspended.

"In our view, Lowe's will either now proceed with a hostile bid within three months or intensify its competitive actions in the marketplace to facilitate more productive negotiations in two or three years," he wrote in a report.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition September 18, 2012 $sourceSection0

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