Rona store owners scoop up shares in bid to help block Lowe’s takeover

“As a merchant, this whole thing isn’t attractive in the least, Mr. Gagnon said. “Yes, we’ve invested in Rona shares. But we’ve also spent a lot of money on our stores. And no matter what we get for the shares, the other side of the investment gets put at risk” with a change of control.

National Post
August 7, 2012

Rona store owners scoop up shares in bid to help block Lowe’s takeover
Nicolas Van Praet

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Together, Rona’s merchants are believed to own at least 10% of the company’s outstanding shares. Reuters/Chris Wattie

Montreal — Rona Inc.’s merchants are wading into the takeover battle with U.S. rival Lowe’s Cos. by accumulating shares in an attempt to help keep the home improvement retailer Canadian-owned.

The move comes amid growing concern among hardware vendors that Lowe’s buying Rona would mean further consolidation in an industry already dominated by the three largest players.

Several Rona store owners have been increasing their positions in the hardware specialist in past weeks, franchise owner Stéphane Gagnon said in an interview Tuesday.

As a merchant, this whole thing isn’t attractive in the least

Their mobilization underscores the positioning by supporters and opponents alike as the market waits for a formal takeover attempt.

Mr. Gagnon’s group alone has hiked its stake by about 37% over the past year, well beyond the minimum required under contract with Rona.

“We’re trying to buy as many shares as we can” to help block a sale, Mr. Gagnon said.

Mr. Gagnon, who together with partners owns four big box stores and two smaller so-called satellite outlets on Montreal’s south shore. Other merchants are doing the same in an informal effort, he said.

“As a merchant, this whole thing isn’t attractive in the least, Mr. Gagnon said. “Yes, we’ve invested in Rona shares. But we’ve also spent a lot of money on our stores. And no matter what we get for the shares, the other side of the investment gets put at risk” with a change of control.

Rona operates with three different store ownership formulas. Some 525 stores are under the control of franchisees and so-called affiliates.

Together, Rona’s merchants are believed to own at least 10% of the company’s outstanding shares. The retailer’s two largest institutional investors are the Caisse de dépot et placement du Québec with 14% and Invesco Trimark with close to 12%. Invesco backs the Lowe’s bid.

Mooresville, N.C.-based Lowe’s disclosed July 31 that it made a non-binding proposal to the board of Boucherville, Que.-based Rona to buy the Canadian company for $14.50 per share in cash. Rona’s board rejected the offer, which values the company at about $1.8-billion. Quebec’s Liberal government has vowed to act to block a formal takeover attempt by Lowe’s.

Current agreements dictate that Rona’s franchise owners are bound by the strategy and decisions of corporate head office. In Mr. Gagnon’s case, he is worried that a new owner would change the sales tactics and sourcing he’s honed over his long career while enforcing a new business model.

“It would be swallowing a big pill,” he said. “And that makes no sense to me. I would lose control over what I’ve built here.” The businessman said he and his partners have invested over $100-million to date on their stores.

Raymond Bachand, Quebec’s finance minister, has characterized Rona as a strategic company for his province because of the size of its supplier network and impact on local communities. Lowe’s has signalled it will continue to try to convince current Rona shareholders and critics alike that its proposal is the best one for both companies.

A significant portion of the Canadian home improvement and hardware industry opposes the kind of consolidation that a Lowe’s takeover of Rona would mean, said Vaughn Crofford, president of the Canadian Hardware and Housewares Manufacturers Association.

“That would be more of a concern to vendors than anything else,” said Mr. Crofford. “It makes it a much more demanding customer. The larger [the customers] are the greater their expectations are. And it doesn’t give you as much control over where your products are going to be sold. If you’ve only got 4 or 5 major players, you’d better be selling to at least three of them.”

In a 2006 investor presentation before Lowe’s entered Canada, Rona estimated that 40% of the Canadian market belongs to three large players, namely Rona, Home Depot and Canadian Tire.

Rona has itself been a major consolidator over the years, swallowing major chains like Cashway, Lansing and Totem.

Rona reports second quarter earnings Wednesday. The company said management will not take questions on the Lowe’s offer during a conference call to discuss the results.

http://business.financialpost.com/2012/08/07/rona-store-owners-aim-to-block-lowes-takeover/


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