It was difficult to defend the Quebec government's decision to protect Rona Inc. at all costs when Lowe's Companies Inc. first launched its hostile takeover bid last summer. It's even more difficult today.
When the $1.8-billion hostile bid was first launched, there was an argument – albeit it a weak one – that Lowe's was swooping in at an opportune time, stealing a Canadian company when the home improvement industry's recovery was still nascent. If you forget that Lowe's had suffered for five straight years, it might have seemed like a decent defence.
But now even that reasoning no longer applies. On Tuesday Home Depot reported its year-end results and the company's recovery is clearly in full swing, sending the stock up 6 per cent. Lowe's also reported Monday, and while its results weren't so stellar, the company's rebound continues apace.
Their stock prices tell the whole story. In the past year Home Depot is up 44 per cent, and Lowe's is up 35 per cent, driven by a better U.S. housing market and a stronger jobs market.
Now, hold on, you say. Rona's also seen a rebound with the stock up 20 per cent in the past year.
But if you extend the time frame back five years, you'll see that argument isn't any good. Since February 2008, Home Depot's up 144 per cent, while Lowe's, which is losing market share to Home Depot, is still up 55 per cent.
Rona, by contrast, is down 20 per cent, and its latest results weren't very inspiring. Further still, the company acknowledges that it will take at least two years before investors see the benefits of its latest restructuring plan.
Of course, there's a key difference between Home Depot and Rona. Home Depot gets most of its revenue from the U.S., where the majority of its over 2,200 stores are located. But on a conference call Tuesday, management actually called out Canada, noting that the division "had positive comps for the fifth consecutive quarter."
Stock charts illustrate the pain, with Home Depot's stock just a dollar shy from its shares' all-time high, and Lowe's already set a new record.
Meanwhile, Rona's down 58 per cent from its 2005 peak.
(Tim Kiladze is a Globe and Mail Capital Markets Reporter.)
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