Montreal Gazette Article on Lowe''s take overLowe's building toward RONA takeover: analyst
'Build or Buy.' Others suggest buyout group will make play for chain
ROBERT GIBBENS, The Gazette
Published: 2 hours ago
Quebec's star hardware retailer RONA Inc. could face a takeover bid in the next six months from Lowe's Cos., the second-biggest U.S. home improvement industry player, says Desjardins Securities Inc. analyst Keith Howlett.
Hardware and home renovation retailing's phenomenal growth is slowing because of maturing markets in many areas, and Howlett says there is a 40-per-cent chance of Lowe's, via its Canadian unit, bidding for RONA at up to $33 a share.
A Lowe's takeover of RONA has been widely discussed since the giant U.S. retailer entered Canada in 2005, saying it would build big-box stores from the ground up to compete with the dominant Home Depot Canada.
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Hardware retailer Rona Inc. lost some shine in May when CEO Robert Dutton reported a sharp decline in first-quarter profit and warned the year's sales would be weaker than expected.
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Font: ****Some other analysts have speculated a large buyout group might try to acquire widely held RONA, planning to sell it later to a strategic buyer.
Howlett says Lowe's must decide whether to "build or buy" to establish its presence in Canada. RONA is the only business that would attract it. A deal would make it the second-biggest player in Canada overnight.
RONA shares lost some shine in May after CEO Robert Dutton reported a sharp decline in first-quarter profit and warned this year's sales will be weaker than expected. But in the past two days, they have gained about 3.5 per cent to around $23.75.
"We can't comment on market speculation," said Chris Ahearn, spokesperson for Lowe's, the parent company, in Mooresville, S.C. "We've said we plan to build our stores in Canada from the ground up rather than go the acquisition route." Claude Guevin, RONA's senior vice-president and CFO, said the company is not discussing a sale.
"We're a consolidator and we've got 16.4 per cent of a market where a 55-per-cent share is still held by independents." One-third of the independents will go in a decade, giving RONA a great opportunity, he added.
"Other analysts don't share Howlett's view." Howlett says in a study it's the maturing of the big-box market that raises the chances of Lowe's buying RONA. "But while they have many similar strengths ... the human chemistry would have to work for a deal to occur and integration succeed." The probability of a deal is highest in the next six months as Lowe's Canada opens its first stores in Ontario, he said.
Lowe's is little known in Canada and "organic store-by-store growth may not be the most prudent use of capital to enter a maturing market." Acquiring RONA would bridge the challenges Lowe's faces in entering Canada, such as supply chain, site and brand identity issues, he says.
Home Depot Canada has 159 big-box stores and RONA 80.
rgibbens@ thegazette.canwest.com
© The Gazette (Montreal) 2007