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Now that U.S.-based home retailer Lowe's (LOW-N) has withdrawn its offer for Quebec-based Rona (RON-T), an analyst at Desjardins Capital Markets say its next move is likely a hostile one.
"Given the proposal had been flatly rejected by the board on July 31 (when the proposal became known to the public), we interpret Lowe’s announcement today primarily as a signal that the ‘friendly’ phase of the takeover process is now suspended," Keith Howlett says in a note to clients. "In our view, Lowe’s will either now proceed with a hostile bid within three months or intensify its competitive actions in the marketplace to facilitate more productive negotiations in two or three years."
Howlett says that Lowe's announcement to pull its offer also dropped a hint that it "continues to believe that a combination of Lowe's and Rona makes business sense and would create significant value for all stakeholders." That, Howlett says, leaves the door open for another move from the U.S. retailer.
"Our view remains that Lowe’s wants to conclude a transaction with Rona before Rona closes, or shrinks in size, 23 big-box stores located outside Québec. Lowe’s would, in our view, like to convert many of these locations (as well as the other Rona big-box stores outside Québec) to Lowe’s," he says.
Howlett adds that Rona plans on closing another 20 big-box stores in the next six months.
Mark Satov, founder of Satov Consultants, tells BNN that he believes a hostile bid from Lowe's is "possible."
"What they are doing at Lowe's is they are putting pressure on the government and putting pressure on Rona," he says. "They are trying to tell the government 'don't try and block this because we may not be back' and Rona 'don't think that you're going to get more money, you're only going to get less.'"
Rona's shares dropped more than 11 percent after Lowe's made the announcement on Monday morning.
In July, Rona revealed that it had received and rejected a nearly $1.8-billion unsolicited takeover proposal from Lowe’s Cos. Translating to $14.50 per share, the approach was a more than 30-percent premium to Rona’s closing price on July 6, the day before the intention was made.
A political firestorm erupted immediately in the wake of the proposal. Quebec Finance Minister Raymond Bachand said the deal “does not appear to be in the interests of either Québec or Canada.”
Adding that Rona was important to both Quebec’s manufacturing industry and labour force, Bachand called on the head of Investissement Québec -- the province’s development corporation -- to set up a fund to counter Lowe’s offer and “defend Québec's interests.”
The Caisse de dépôt et placement du Québec [Caisse] -- which oversees the province’s public sector pension fund and is a major Rona shareholder – quickly stepped into the fray and laid out a number of criterion for a deal, including maintaining a head office in the province. Hours after the proposal was made public, Caisse also increased its stake in the retailer by about 2 percent to 14.2 percent of outstanding shares, saying the purchase was made “in the context” of the unsolicited bid by Lowe’s.
The potential takeover also became an issue in the recent provincial election in Quebec, with the then-ruling Liberal Party and the election winner Parti Quebecois coming out against it.