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With Rona board shakeup, Caisse soothes Invesco’s itch to sell

The battle over troubled home improvement retailer Rona Inc. has ended in armistice. After pushing for a whole new board, Rona's second largest shareholder, Invesco Canada Ltd., has agreed to a plan to bring in eight new directors, upping the board size to 14 members from 12. Investors might be surprised to see that Rona's largest shareholder, the Caisse de dépôt et placement du Québec, is onside with Invesco, until they realize what has really changed: Invesco is no longer pushing for a sale of the company to U.S. retail giant Lowe's Cos. Inc.

The changes at Rona are largely positive, including the recruitment of new executive chairman, a first-class operator named Robert Chevrier. Not only does Mr. Chevrier have a wealth of relevant experience (he's served as a CEO and chairman of companies specializing in hardware supply and distribution), he is well known to Invesco, which was a top shareholder of electrical supply firm Westburne Inc. when he was CEO. The other new board members have a decent array of senior corporate experience, and more geographical diversity – essential for a company which generates most of its revenues outside Quebec; whereas 11 of the previous 12 directors were from Quebec, four of the six newcomers are based elsewhere.

The board's most important task is to hire a new CEO to replace the recently deposed Robert Dutton. That person will have to work quickly to fix and streamline the overly complex business (Rona stores have too many formats, from big box to medium-sized to local) and end the company's long stretch of declining profitability. It has lagged the industry for too long.

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The Caisse can live with all that. Whether it can support a takeover by Lowe's, however, remains unclear. News of an unsolicited offer from Lowe's on the eve of a provincial election last summer provoked intense political backlash, including threats by politicians to try to block a deal. The Caisse responded by trying to play it both ways, saying it wanted not only to increase value for its depositors but also to protect Rona's Quebecois suppliers, franchisee entrepreneurs and head-office employees – surely three groups that would be under threat if Lowe's took over.

But Caisse CEO Michael Sabia is shrewd and pragmatic, and the agreement with Invesco and Rona is the best solution he can hope for given the Caisse's dual mandate: to pursue both optimal returns on behalf of millions of Quebecers, and to support the province's economic development.

Now, the Caisse gets to claim partial responsibility for installing a new board and CEO, and for pushing forward a new strategy that should presumably improve the company's earnings and stock price. By convincing Invesco to abandon hope of selling out to Lowe's, Mr. Sabia avoids a divisive and politically unpalatable takeover battle. It's a win-win outcome, and if talk of a Lowe's-Rona deal resurfaces in the future – as it is bound to – at least Mr. Sabia has bought himself some time to ensure the sell-off of a major Quebec corporation doesn't happen on his watch.

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About the Author

Sean Silcoff joined The Globe and Mail in January, 2012, following an 18-year-career in journalism and communications. He previously worked as a columnist and Montreal correspondent for the National Post and as a staff writer at Canadian Business Magazine, where he was project co-ordinator of the magazine's inaugural Rich 100 list. More

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