Management Consulting, Retail


Key Shareholder Backs Lowe’s Bid For Rona

One of Rona Inc.’s biggest shareholders is backing U.S.-based Lowe’s $1.8-billion unsolicited bid for Canada’s largest home improvement company.

Invesco Canada Ltd., which has a 12-per-cent stake in Rona through several funds, confirmed Wednesday it is supporting Lowe’s bid of $14.50 a share. The U.S. home improvement giant said it has the backing of institutional shareholders holding 15 per cent of Rona stock.

“We are supportive of the bid by Lowe’s,” said Ian Hardacre, a portfolio manager with Invesco Canada, which has held Rona shares for about five years and is its second-largest shareholder.

“We are extremely disappointed in the management team [at Rona], and how they have run the company,” he said in an interview. “There has been an extraordinary misallocation of capital over the last five years.

“They have spent way in excess of the depreciation, building stores and buying assets, and there is no return… The return on capital has decreased every single year.”

Boucherville, Que.-based Rona said Tuesday that it had received an unsolicited offer from Lowe’s for $14.50 a share in early July. But its board of directors rejected the bid, deeming it not in the best interests of its shareholders.

The disclosure capped months of rumours that Lowe’s had its sights set on struggling Rona to gain a bigger footprint in Canada and go toe to toe with its U.S. rival Home Depot Inc. in this country.

The offer has attracted the attention of the Quebec government, which describes Rona as a “strategic interest” that should not slip into the hands of foreign owners. Rona’s largest shareholder, the province’s powerful Caisse de dépôt et placement du Quebec, boosted its stake in the retailer on Tuesday to 14.2 per cent from about 12 per cent.

Mr. Hardacre, who is a long-term value-oriented investor, is not happy with back-room dealings to keep Rona from being sold to Lowe’s.

“The board [at Rona] has the responsibility to represent all shareholders – not just certain shareholders,” he said. “It seems like right now they are not doing that. They have the responsibility to all shareholders, and we expect that from them.

“I hope everybody respects the capital markets, including the board. This is a company that is owned by the shareholders – not the government. Hopefully, there is representation for all shareholders on the board.”

While Invesco Canada will accept $14.50 a share for its Rona stock, Mr. Hardacre said that an even higher price would get more shareholders on board. “We would love a higher price too,” he said.

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