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Rona rejects Lowe’s $1.76 bln takeover bid

Canadian home improvement retailer Rona (TSE:RON) Tuesday rejected a $1.76 billion hostile takeover from U.S. rival Lowe’s Companies Inc. (NYSE:LOW), citing it was not in the best interest of stakeholders.

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Canadian home improvement retailer Rona (TSE:RON) Tuesday rejected a $1.76 billion hostile takeover from U.S. rival Lowe’s Companies Inc. (NYSE:LOW), citing it was not in the best interest of stakeholders.
 
Lowe's is offering to acquire all Rona shares for $14.50 each, a 22 per cent premium on Rona's closing stock price on Monday of $11.87.

The Montreal-based company, which is the largest Canadian distributer and retailer of hardware and gardening products, said that it should remain "focused on executing its business plan with a view to capturing significant opportunities it sees for its business."

"With a view to ensuring market transparency, Rona believes it is important for shareholders and other stakeholders to be made aware of these developments."

Rona received the unsolicited and non-binding acquisition proposal from Lowe’s on July 8. Rona’s board carefully considered Lowe’s $14.50 per share offer. Lowe’s indicated, in its July 8 proposal, it held a number of talks with Rona shareholders and proposed entering into a board-supported transaction.

At this point, Rona requested its American rival to confirm it would not pursue a transaction that was not supported by Rona’s board.

After receiving the proposal, Rona created a special committee made up of independent directors with the help of Scotiabank (TSE:BNS) and BMO Capital Markets (TSE:BMO) as financial advisors.

Rona told Lowe’s on July 26, both the board and special committee unanimously determined its proposal was not in the best interests of Rona and its stakeholders.

Meanwhile, on July 28, Lowe’s said it was "still its desire to proceed with a board-supported transaction” and that it “remained very interested in pursuing" a deal with Rona.

Lowe’s, headquartered in Mooresville, North Carolina, has about 16 stores and 2,800 employees. Its first Canadian stores opened in 2007. Rona has more than 30,000 employees operating a network of nearly 800 stores under several banners as well as 14 hardware and construction distribution centres.

According to industry observers, it would make sense for Lowe’s to acquire Rona to compete with U.S. giant Home Depot (NYSE:HD), which has 180 stores in Canada.

Rona, in early May, reported that it narrowed its fiscal first-quarter loss but sales from established stores declined amid lower margins. Net loss was $13.3 million, or 10 cents per share, compared to a $17.6 million, or 13 cents a share loss, last year.

Sales, however, edged up 1.8 percent to $934.9 million compared to $918.2 million a year earlier.

The company attributes the increase to higher distribution sales and its expansion of the commercial and professional market division.

Same-store sales fell 0.8 per cent. Sales were down in January, but rose in February and March, the company said.

Rona's gross margins eased to 28.58 percent from 28.98 percent a year earlier.

Quick facts: Rona Inc

Price: - CAD

TSX:RON
Market: TSX
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