Lowe's Buying Rona

© AP Photo/Chuck Burton

Lowe's to buy Canadian rival Rona for $2.3 billion in cash - Lowe’s has agreed to buy rival Rona Inc. for C$3.2 billion ($2.3 billion) in cash to create one of Canada’s biggest home-improvement retailers, almost four years after its earlier takeover proposal got rebuffed.

Lowe’s will pay C$24 per share, it said in a statement, more than double yesterday’s closing price of C$11.77. It agreed to pay C$20 for the Boucherville, Quebec-based company’s preferred shares. The boards of both companies approved the planned transaction.

The combination, which Rona’s management had rejected in 2012, will create a company with about C$5.6 billion in annual revenue. The idea is to capture a greater share of Canada’s growing home-improvement industry, worth more than C$45 billion, Lowe’s Chairman and Chief Executive Robert Niblock said in the statement. Lowe’s has identified more than C$1 billion of opportunities to further increase revenue and operating profitability in Canada, where it could double operating profitability in five years, according to the statement.

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.

Richer Premium

Since then, the Liberals have taken power in Quebec, the economy has slumped and the currency has plunged, making it cheaper for Lowe’s to offer a richer premium. The loonie has dropped to 72 cents versus the U.S. dollar, compared with parity when Lowe’s pulled its bid. So while the C$24 a share bid in Canadian dollar terms is about 65 percent higher than the C$14.50 a share bid that was rejected, in U.S. dollar terms the offer is just 16 percent higher.

Lowe’s said it’s making several commitments to Rona, including maintaining its Canadian base in Boucherville, keeping the Rona store banners and retaining “the vast majority” of current employees.

CIBC World Markets Inc. and RBC Capital Markets advised Lowe’s. Stikeman Elliott LLP served as legal counsel to Lowe’s in Canada, while Hunton & Williams LLP did so in the U.S. Scotia Capital Inc. was Rona’s financial adviser and Norton Rose Fulbright Canada LLP its legal counsel.