Lowes (LOW) paid 100% premium for Rona Inc (TSX: RON) to create a huge footprint in the home repair segment increasing the rivalry with Home Depot. The surprise was the timing and the price. It came on the back of Rona's earnings report and was 100% premium to the previous close in an all cash deal going out at $24c on the Toronto Exchange. Rona has not seen this price since before the economic meltdown in 2008, but often when you want to acquire the entire enchilada you need to pay top dollar.
"We are very excited about this transaction as it leverages the strengths of two great companies, positioning us for continued success in Canada's over C$45 billion and growing home improvement industry. The strategic rationale of this transaction, for both companies, is very compelling," said Lowe's Chairman, President and CEO Robert A. Niblock.
"The transaction is expected to accelerate Lowe's growth strategy by significantly expanding our presence in the Canadian market through the addition of RONA's attractive business and excellent store locations across the country," added Niblock. "Importantly, the transaction also provides Lowe's with entry into Quebec, where RONA is the market leader and we have no presence. We have committed to maintaining RONA's operations in Boucherville, where we will headquarter our Canadian businesses, and plan to continue to operate RONA's multiple retail banners and distribution services to independent dealers. With our shared customer-centric values and a steadfast commitment to the Canadian market, we expect to generate significant long-term benefits for shareholders, customers, vendors, employees and the communities we serve."
RONA's Chairman, Robert Chevrier added, "We believe the time is right to take the next step in the evolution of the RONA family. The team at Lowe's has presented us with an excellent plan that enables our company to maintain its brand power while at the same time leveraging Lowe's global presence to build upon and expand our reach. With commitments made by Lowe's to our employees, potential new markets for Canadian manufacturers and product offerings for our independent dealers, this transaction presents the ideal opportunity for the continued growth of our company while delivering an attractive premium for our shareholders."
The Canadian operations will be led by Sylvain Prud'homme, president of Lowe's Canada. The senior management teams of both companies will work to assure a smooth and effective transition.
"We are pleased with the solid position we have established in key Canadian markets in recent years and the positive reception from our local customers," said Prud'homme. "We look forward to continuing our commitment to the Canadian market and further enhancing our offering to the customers of both Lowe's and RONA. We have great respect for RONA's leadership team and RONA's talented employee base and look forward to working together to take our businesses to the next level."
Lowe's has identified over C$1 billion of opportunities to further increase revenue and operating profitability in Canada. These include: expanding customer reach and serving a new portion of the market by applying Lowe's expertise in certain product categories, such as appliances; enhancing customer relevance, utilizing Lowe's strengths as a leading omni-channel home improvement company and drawing on its customer experience design capabilities; and driving increased profitability in Canada by leveraging shared supplier relationships and enhanced scale, as well as Lowe's private label capabilities, in addition to eliminating RONA's public company costs. Given these opportunities, Lowe's believes there is potential to double operating profitability in Canada over five years.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer