Canada's Rona Rejects Lowe's Buyout Offer of $1.8 Bln

A Rona store is pictured in Ottawa February 24, 2011. (Credit: Reuters/Chris Wattie)

Lowe's Cos Inc has offered to buy Rona Inc, Canada's largest home-improvement chain, for $1.8 billion but so far Rona is rejecting the offer.

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Canadian retailer Rona said on Tuesday the offer is not in the best interest for its shareholders. Lowe's, the world's second largest home improvement chain offered C$14.50 a share on Sunday, July 8, making it a 36.7 percent premium to the stock's closing price on Friday, July 6.

The Quebec government said it may intervene after Lowe's Cos. Inc. made a $1.8-billion offer for Rona Inc. In a statement to the Globe and Mail, Quebec Finance Minister Raymond Bachand said the deal is not in Quebec or Canada's interest, and said he is directing Investment Quebec to look at "all steps to counter this bid" - including creating a fund to "protect Quebec's interests."

The relatively wide gap between Lowe's offer and the market price suggests investors were uncertain that there will be a deal, given the response from Rona's board and Quebec's provincial government.

"The board believes that, in the best interests of Rona and its stakeholders, the corporation should remain focused on executing its business plan with a view to capturing significant opportunities that it sees for its business," Rona said in a statement.

Rona's shares were up 18.2 percent at C$14.03 on Tuesday on the Toronto Stock Exchange.

Boucherville, Quebec-based Rona has struggled as Home Depot and Lowe's have opened up stores in Canada. Sales at Rona's established stores, or same-store sales - a key measure for retailers - dropped 7.3 percent in the year ended December 25, 2011.

"We are disappointed that Rona's board of directors has rejected our friendly non-binding proposal, which is clearly attractive for Rona shareholders," said Robert Niblock, the chairman, president and chief executive of Lowe's.

"We believe a combination of Lowe's and Rona makes enormous business sense.

In addition, our proposal includes a number of important commitments to Rona that will benefit key stakeholders, including Rona's dealer-owners, employees, suppliers, customers and local communities and would keep Rona's headquarters in Boucherville, Quebec."