Retail

Lowe's Using Acquisition to Expand in Canada

Paul Ausick

Published: February 3, 2016 12:05 pm

Last Updated: January 13, 2020 1:41 pm

After an on-again, off-again courtship, Lowe’s Companies Inc. (NYSE: LOW) is finally headed for the altar with Canada’s Rona. Lowe’s is paying about $2.3 billion in an all-cash transaction for all the common and preferred shares of Rona. That’s more than double Rona’s Tuesday closing price on the Toronto Stock Exchange.

In September of 2012, Lowe’s dropped a $1.8 billion hostile takeover of Rona. Rona had already rejected the offer as too low and the company’s rejection had the support of the Quebec government, which sided with the Canadian retailer claiming that Rona was a strategic asset for the province. At the time Lowe’s offer amounted to a 41% premium over Rona’s share price.

Lowe’s is paying C$24 per common share of Rona stock and C$20 per preferred share, and Rona shareholders are expected to vote on the deal before the end of the first quarter.

Lowe’s CEO Robert Niblock said:

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. 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.

Investors appear to believe that Lowe’s overpaid. The stock was down about 6.7% in late morning trading Wednesday, at $67.17 in a 52-week range of $64.22 to $78.13.

Rona, however, traded up more than 98% on the Toronto Stock Exchange, at C$23.33 in a 52-week range of C$10.50 to C$23.57. The high was set Wednesday morning.