Rona Denies Lowe’s Merger

Canadian home improvement retailer Rona Inc. has rejected lingering suggestions that it would be better off in the long run to merge with Lowe’s Cos. Inc., saying its investors are just glad their stock has recovered under the company’s current leadership.

“Honestly, unless it’s a real knockout price [that we’re offered], I think people are satisfied that the stock price is climbing,” chairman Robert Chevrier told reporters after Rona’s annual meeting on Tuesday, noting the shares have roared back since hitting a 10-year low of $8.70 in late 2011. “What I’m hearing from people is, ‘Don’t get too worked up. You’ll get there.’”

Lowe’s, which is based in Mooresville, N.C., made a non-binding offer of $14.50 per share for the Quebec-based Rona in July, 2012, just as a provincial election campaign began in Quebec. The bid became politicized, with the incumbent Liberal government vowing to prevent the takeover, and it died before Rona shareholders could have a say.

Since then, Rona has implemented a turnaround plan under new chief executive Robert Sawyer in which it scaled down operations, repositioned banners and became more aggressive on marketing. The company generated a profit for 2014, and same-store sales growth has been positive for three straight quarters. Meanwhile, Lowe’s is speeding up its expansion plans for Canada, announcing plans to buy a distribution centre in Milton, Ont., and up to 13 store leases given up by Target Corp.

But the idea of joining the two companies lives on. “We continue to be of the view that Rona and Lowe’s Canada would be much more competitive with Home Depot Canada if they were to combine forces,” Desjardins Capital Markets analyst Keith Howlett wrote in an April 9 note. “With both companies now much healthier than when the nascent courtship blew up over 2 1/2 years ago, the probability of a marriage appears, in our view, slightly higher.”

Mr. Chevrier said no one has approached Rona seeking to do a takeover transaction and that such a deal is not in the company’s plans, adding that the greater scale of a Rona-Lowe’s alliance would not necessarily provide a boost in competitive power against small, independent hardware retailers, which still control most of the market.

Rona on Tuesday reported a first quarter loss of $11.7-million or 11 cents per share because of bad weather in Quebec and higher marketing expenses. Revenue rose 2 per cent to $778.8-million in what is typically the company’s slowest three-month period. Analysts had been expecting a loss of 8 cents per share.

Rona shares closed up two cents on Tuesday at $16.06 in Toronto trading.