Lowe’s backs out of Rona bid… or does it?

Rona has some breathing room to build its Canadian home-improvement chain, but industry experts believe Lowe‘s may not have ended its cross-border courtship despite abandoning its $1.8-billion bid for the company. The U.S. chain’s withdrawal Monday will come at a cost to Rona investors, with the Quebec-based company’s shares dropping more than 8% following the […]

Rona has some breathing room to build its Canadian home-improvement chain, but industry experts believe Lowe‘s may not have ended its cross-border courtship despite abandoning its $1.8-billion bid for the company.

The U.S. chain’s withdrawal Monday will come at a cost to Rona investors, with the Quebec-based company’s shares dropping more than 8% following the announcement that Lowe’s is no longer contemplating an offer of $14.50 per share cash.

Rona stock dropped $1.03 to $11.74 in morning trading on the Toronto Stock Exchange, following the pre-open announcement from Lowe’s Companies Inc. Lowe’s shares slipped three cents to US$29.37 in New York.

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

“It is unfortunate that the Rona board of directors did not recognize the important economic and commercial benefits of this proposal for its stakeholders and for Canada,” the statement said.

“Lowe’s remains committed to the Canadian market and will continue delivering outstanding home improvement products and services to its Canadian customers.”

Related
Rona rejects takeover bid from Lowe’s

Analysts say that statement suggests Lowe’s may still have designs for Rona and follow the lead of U.S.  retailers like Target and Nordstrom that are expanding into Canada.

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.

“Our view remains that Lowe’s wants to conclude a transaction with Rona before Rona closes, or shrinks in size, 23 big-box stores located outside Quebec,” he wrote.

Rona closed three stores in Whitby, Ont., Calgary and Edmonton that were close to Lowe’s locations and will close or shrink another 20 location over the next six months.

Howlett said Lowe’s management was in Montreal last week for meetings with advisers and will make a hostile bid within three months or intensify its competition to facilitate more productive negotiations in two or three years.

Lowe’s has a relatively small presence in Canada, although it is the second-largest home improvement retailer in the United States, after Home Depot.

Only 31 of Lowe’s stores are in Canada, out of 1,745 across North America.

Rona has by far the largest number of company and affiliate-owned home-improvement locations in Canada under its banner, with Home Depot a distant second.

Rona has more than 30,000 employees operating a network of nearly 800 stores under several banners as well as 14 hardware and construction distribution centres. Home Depot currently has 180 stores across Canada.

North Carolina-based Lowe’s had informally offered C$14.50 per share in cash but there was little enthusiasm for the proposal, even among analysts that cover the company.

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