Lowe’s Drops Take Over Proposal For Rona, Due To Disagreements

Lowe’s Drops Take Over Proposal For Rona, Due To Disagreements
By Ildar Sagdejev (Specious) (Own work) [GFDL or CC BY-SA 4.0-3.0-2.5-2.0-1.0], via Wikimedia Commons

Lowe’s Companies, Inc. (NYSE:LOW) dropped its $1.76 billion proposal to take over Rona Inc (TSE:RON) (TSE:RON-A), a Canadian-based home improvement retailer, after the company failed to reach a friendly agreement with its board of directors.

Lowe’s Drops Take Over Proposal For Rona, Due To Disagreements

In July, Rona’s board of directors strongly rejected Lowe’s unsolicited offer to acquire the largest home improvement retailer in Canada for $14.50 per share. Lowe’s Companies, Inc. (NYSE:LOW) offered a 22 percent premium of the $11.87 per share closing price of Rona’s stock on July 30. The board of directors of the Canadian company said Lowe’s proposal was not in the best in best interest of its shareholders, and requested that Lowe’s stop pursuing its proposal.

Rona’s stock value declined by 10 percent to C$11.45 per share during the early morning trading in Toronto, after Lowe’s announced its withdrawal to acquire Rona.

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Lowe’s Companies, Inc. (NYSE:LOW) proposal to take over Rona Inc (TSE:RON) (TSE:RON-A) was one of the controversial issues during the provincial election in Quebec. Lawmakers in Quebec strongly rejected Lowe’s proposal. They want to retain the ownership of Rona by Canadians.

Lowe’s said, “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.”

Julie Yenichek, spokesperson for the Mooresville, North Carolina based home improvement retailer, said it is still committed in growing its business in Canada and it is exploring other options, such as continued organic expansion.

During a previous conference in New York this September, Robert Niblock, chief executive officer of Lowe’s said the company is looking to acquire other companies in Canada, in anticipation of a failed agreement with Rona.

A report from Reuters cited a comment from Alan Rifkin, analyst from Barclays PLC (LON:BARC) (NYSE:BCS), regarding Lowe’s Companies, Inc. (NYSE:LOW)’s decision to drop its takeover bid for Rona Inc (TSE:RON) (TSE:RON-A). Rifkin believed Lowe’s made the right decision. He explained, “In our view, acquiring Rona would have saddled Lowe’s with a daunting integration that would have limited its ability to focus on rightsizing its U.S. operations. Lowe’s was compromising by acquiring Rona’s network of dealer-operated stores, many of which are too small to effectively compete with larger big-box retailers, such as The Home Depot, Inc. (NYSE:HD).

In addition, Rifkin said, “While Lowe’s current Canadian platform of 31 stores does lag behind Home Depot’s current platform of 180 stores, its most pressing issues lie in the U.S. – where it continues to be outcomped by The Home Depot, Inc. (NYSE:HD)- and not in Canada.”

Lowe’s stock value rose by 0.54 percent to $29.56 per share during the afternoon trading at the New York Stock Exchange.

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