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Stock to Watch: Rona shakeup won't mean windfall for investors

Workers open stock for the opening of the new RONA store in Edmonton.

JASON FRANSON/The Globe and Mail

Rona Inc.

Wednesday's closing price: $11.52 a share, up 54 cents.

52-week trading range: $8.64 - $14.50 a share

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Annual dividend: 14 cents a share for a yield of 1.2 per cent

Analysts' ratings: Of nine analysts who cover the stock, all of them rate it as a hold, according to Bloomberg financial data. Price targets range from $10 to $12 a share.

Recent history: Rona's shares have been on a wild ride lately. The stock of the Quebec-based home improvement retailer languished in the $10-a-share range until U.S. rival Lowes' Cos. made public a proposed takeover bid of $14.50 a share this past summer. Its shares climbed to near the takeout-level, but lost gravity after Lowe's offer was rebuffed by Rona's board and the U.S. hardware giant withdrew its offer in September. The stock tumbled close to $9 last week when Rona reported an 89-per-cent plunge in third-quarter profit. When its long-time chief executive officer Robert Dutton resigned unexpectedly last Friday, investors sent Rona shares climbing again on speculation that the company was back in play.

Outlook: Shares of embattled Rona saw another bump on Wednesday after its second-largest shareholder, Invesco Canada Ltd., announced that it was seeking a shareholder meeting to oust Rona's board of directors and install a new slate. The proposed board, whose members were revealed, would require approval of 50.1 per cent of shareholders.

"I think it is a slam dunk that the board will be replaced," said Norman Levine, managing director of Portfolio Management Corp. and who is a Rona shareholder. "It's a very weak board...with only one outside director. A new board will be more shareholder friendly. That doesn't mean they are going to go out and sell the company, but it increases the likelihood they will."

Rona's stock "is probably going to tread water" for a while, Mr. Levine said. "I think that it has probably gotten ahead of itself because of all the news going on, but the fundamentals have not changed. We have to get a new CEO, and see what the direction is...If there is a possible takeover offer coming [from Lowes'], it is is not coming today or tomorrow...

"If you are a short-term trader, you might be exiting here," he said. "If you are a long-term holder, there is probably lots of stuff coming, but not for a while...The next move is for [Invesco] to put forth an alternative slate of directors for shareholders to vote on."

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