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Lowe’s (NYSE:LOW) announced Monday that its $1.8 billion proposal to buy Quebec-based home improvement retailer Rona (TSE:RON) had been withdrawn, a decision welcomed both by opposition in Canada and financial analysts.
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Rona rejected Lowe’s unsolicited, $14.91-per-share-offer because it was not in the best interest of its stockholders. Shares, which have risen after the deal was announced in July, fell by 11 percent on the Toronto Stock Exchange Monday morning. In comparison, shares of Lowe’s closed down 17 cents, at $29.23 Monday.
Lowe’s Chief Executive Robert Niblock sought to acquire Rona, in what would have been the retailer’s largest acquisition, to expand and operate profitably in Canada, where it began opening stores in 2007. Niblock said at a conference earlier this month that Lowe’s would look at acquisitions other than Rona.
Of the deal’s withdrawal, a Lowe’s spokesperson said in a statement, “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 proposal, which was never made formal, met with opposition during Quebec’s recent provincial election. Both the Liberal Party and eventual winner, the Parti Quebecois, feared Lowe’s would layoff Rona employees despite assurances from the company to preserve them. Several of Rona’s vendors also voiced opposition, and threatened to sever ties with Rona if the deal was accepted.
Just as the Canadian political opposition voiced its fears, so too did Barclays analyst Alan Rifkin in a note to clients. “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,” he wrote. Rifkan said he encouraged Lowe’s not pursue the deal further.
Lowe’s has lagged behind its larger rival, Home Depot (NYSE:HD), for 13 straight quarters, and as a result cut jobs, curbed store expansion plans, and streamlined its supply chain to cut costs more effectively. As part of the plan, Lowe’s decided to provide fewer discounts on expensive items, like appliances, in order to offer “everyday low prices.” The company’s 31 Canadian stores also currently lag behind Home Depot’s 180 stores, but according to Rifkin, the most pressing issue for Lowe’s is competition in the United States.
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