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Lowe's drops $1.8B bid for Rona

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Lowe's Cos Inc. (LOW-N), said on Monday it had withdrawn its $1.8 billion proposal to buy Rona Inc. (RON-T) in the face of stiff opposition to the unsolicited bid for the Canadian home improvement retailer.

Quebec-based Rona, Canada's home-grown answer to Lowe's and Home Depot Inc. (HD-N) had rejected the $14.50-per-share offer, saying it was not the best deal for its stockholders.

"It is unfortunate that the Rona board of directors did not recognize the important economic and commercial benefits of this proposal for its stakeholders and for Canada," the U.S. home improvement chain said in a statement.

Rona shares, which rose as high as $14.49 immediately after the offer was announced in July, have pulled back since then as investors saw the chances of a deal being made fading due to opposition from the company, its dealers, and politicians in Quebec.

The proposal, which never made it to the formal offer stage, became a hot-button issue during Quebec's recent provincial election, with politicians from both the Liberal Party and the eventual winner, the Parti Quebecois, voicing strong opposition to it.

It also faced opposition from some of Rona's dealers, who threatened to sever ties with Rona, if Lowe's prevailed with its offer.

"I don't think the market anticipated this deal going through in the first place," said RBC Capital Markets Scot Ciccarelli. "I am kind of dismissing it as not a really big surprise here."

COMMITTED TO CANADIAN GROWTH

Lowe's said it still believes that a combination of the two companies would have been a sound business move and would have created significant value for all stakeholders.

"We do remain committed to growing in Canada and are currently evaluating other options including continued organic expansion," Lowe's spokeswoman Julie Yenichek said.

Earlier this month, while speaking at a conference in New York, Lowe's Chief Executive Robert Niblock said Lowe's would look at other acquisitions, or a greenfield expansion in Canada, if its bid for Rona failed.

In a note to clients, Barclays analyst Alan Rifkin said he was encouraged that Lowe's ultimately decided not to pursue the deal further.

"In our view, acquiring Rona would have saddled Lowe's with a daunting integration that would have limited its ability to focus on rightsizing its U.S. operations," he said. "Lowe's was compromising by acquiring Rona's network of dealer-operated stores, many of which are too small to effectively compete with larger big-box retailers such as Home Depot."

Lowe's has lagged larger U.S. rival Home Depot in same-store sales for 13 straight quarters. The company has cut jobs, curbed store expansion plans and streamlined its supply chain to cut costs and compete more effectively, but it has yet to see results.

It recently decided to provide fewer discounts on expensive items such as appliances, in sync with its bigger plan to offer "everyday low prices" rather than promotions.

"While Lowe's current Canadian platform of 31 stores does lag behind Home Depot's current platform of 180 stores, its most pressing issues lie in the U.S. - where it continues to be outcomped by Home Depot - and not in Canada," Rifkin said.

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