By Jamie Barrie
Lowe’s is headed full steam ahead into the Canadian market. The U.S. giant has been testing the waters for a few years in the West and in Ontario as they watch rival Home Depot cement their position across the entire Canadian landscape.
Earlier this year Lowe’s indicated their intention to try once again to RONA. This time the numbers were right, thanks to a low loonie, Lowe’s was able to acquire the Quebec based company for $3.2 billion in a friendly takeover, simply meaning that both the Lowe and RONA boards approved the deal.
This is good news as the last attempt by Lowes to acquire RONA back in 2012 got ugly. Some of the most vocal players were the Quebec government and their pension fund along with dozens of independent merchants operating under the RONA banner. Quebec’s sovereignst political party, the Parti Qu?b?cois publically called for the deal to be stopped in 2012 and to no one’s surprise they were pushing again to have the deal blocked and pressured Quebec’s Liberal Government to not let the acquisition take place.
In a move many feel will last only a short time and a ploy trying to win over regulators and derail the anti-merger campaign of the Parti Qu?b?cois, Lowe’s has agreed to maintain many of the RONA storefronts and branding, especially in Quebec. Lowe’s has also agreed to headquarter the new operation in Boucherville, Quebec, a decision that has shocked many in the industry as well as investors who are unfamiliar with RONA’s ownership arrangement.
Good news for Lowe’s this time around what that RONA’s biggest shareholder Quebec’s pension plan, The Caisse, which owns almost one fifth of the company announced they would tender its 18 million shares in support of the Lowe’s and RONA merger saying, “it believes the transaction will result in equal or superior economic activity generated by the RONA banners in Qu?bec.”
As for regulators, Lowe` received the all clear, well it was more like and “OK” from the Quebec’s Competition Bureau’s, which is now being highly scrutinized and under a government review as some want answers to how this happen and who gave the okay for what is being considered a controversial decision to grant approval of the RONA acquisition, but none the less, the approval was given, controversial or not and the deal took place.
Industry experts say Lowe’s may be learning about Canadian culture from the mistakes of another U.S. retail giant like Target, who made a colossal failure of their entry and subsequent retreat from the Canadian market, costing the company and its shareholders billions. Lowe’s is embracing the Canadian culture, especially the Quebec culture, far more than Target did or even thought of doing. Lowe’s also took a further step to embrace and promote its Canadian content by appointing RONA CEO Sylvain Prud’homme as head of their entire Canadian division.
Many marketing analysts are commending Lowe’s for building on their base in the West and Ontario by merging with RONA to serve all of Canada. Lowe’s CEO Robert Niblock expects the deal will help the U.S. firm with revenue targets and he is aiming to double the profitability at RONA within five years.
Lowe’s will need all the help they can find when it comes to revenue as they had to lower their 2016 earnings outlook recently after second quarter numbers were released to the market. Their CFO, Bob Hull laid the blame squarely on the RONA purchase and said they expect a full year of diluted earnings because of the deal.
However, the good news is Lowe’s is calling for 10 percent sales growth this year up from the 6 percent they projected back in May, which is an almost 17 percent improvement. Their quarterly sales numbers were up 5.3 percent from the same period last year finishing the reporting period at $18.3 billion.
Stockholders will likely not change their holding as Lowe’s has been a strong performer year over year. The biggest winner might just be the Canadian consumer. Fang Wan of the University of Manitoba’s Asper School of Business believes Lowe’s will force Home Depot to be more competitive nationally and that should translate into better products and service at lower prices which is good news for homeowners, wannabe homeowners and contractors alike.