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As Lowe's stalked Rona, shares climbed 12 per cent

These are stories Report on Business is following Tuesday, July 31, 2012.

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How Rona's stock rose
Look at a chart of Rona Inc.'s stock price and you can see a spike in value and volume late last week.

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Indeed, the hardware and home renovation retailer's shares climbed almost 12 per cent since Friday, July 6, and yesterday. Compare that to the S&P/TSX retailing index, which inched up 0.5 per cent in the same period.

Friday, July 6, is important because, according to Rona today, it received an unsolicited takeover proposal from rival Lowe's Inc. two days later, on a Sunday.

Investors, however, didn't learn about that until today, when Rona disclosed the $14.50-a-share proposal, which, by the way, it rejects as "not in the best interests" of the company or its shareholders.

"The board believes that in the best interests of Rona and its stakeholders, the corporation should remain focused on executing its business plan with a view to capturing significant opportunities that it sees for its business," the company said.

There has certainly been speculation about Lowe's going after Rona, which pushed up its stock price earlier. Its chief financial officer was even asked about it a few months and said he was open to "all options." And, keep in mind that Lowe's hasn't launched a formal bid. As well, the stock closed yesterday at $11.87, well below the proposed offer.

According to Rona, Lowe's made its proposal July 8, prompting the board, a special committee of independent directors, helped along by bank and legal advisers, to study the bid.

Lowe's wanted a deal that was supported by the board, and Rona asked its competitor to pledge that it would not go forward with any offer that wasn't.

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On July 26, Rona told Lowe's to take a hike.

Then, on July 28, Lowe's said it still wanted a deal supported by the board but, according to Rona, it "also indicated that it remained very interested in pursuing a transaction with Rona and was going to consider all of its options." That presumably meant its suitor could go hostile.

Lowe's confirmed the proposed bid today, and said it already has the support of institutional shareholders that own about 15 per cent of the stock.

Today, Rona said it was disclosing what went down because shareholders should know: "With a view to ensuring market transparency, Rona believes that it is important for its shareholders and other stakeholders to be made aware of these developments."

Well, yeah, particularly when the stock rises 12 per cent.

Lowe's bid sparks Quebec intervention
The quest by Lowe's for Rona set of sparks in Quebec today, where the province's finance minister warned he was moving to block a deal.

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Raymond Bachand also said his government has pledged its support to the retailer.

"In reaction to these intentions, Mr. Bachand has asked the CEO of Investment Quebec, Jacques Daoust, to assess quickly all options in case the bid from Lowe's becomes reality," the government said in a statement.

"The Finance Minister and his colleague, Economics Development Minister Sam Hamad have mandated Investment Quebec to look at all steps it could take to counter this bid, including creating a fund to protect Quebec's interests."

It's not clear exactly how a fund would "protect Quebec's interests," but the comments are certain to raise eyebrows among foreign investors.

The Caisse de dépôt et placement du Québec, in turn, the giant pension manager that owns a chunk of Rona stock, said it is watching developments to take its own interests into account.

It wants "value creation," among other things, which include what happens to Rona's head office in the province, development of the supplier network, and the rights of franchisees.

Economic growth slows
Canada's economy neared stall speed in May, growing just 0.1 per cent.

That was below what economists had expected, and down from 0.3 per cent from April, according to Statistics Canada's reading of gross domestic product today.

The retail, finance and insurance sectors led the gains, while transportation services and arts and entertainment held output back.

Production of goods was flat. There was an expected boost in oil and gas and mining, but manufacturing and construction slipped, the agency said.

"Manufacturing was a notable miss, falling 0.5 per cent in real output despite an earlier reported gain in real shipments, and we had expected a larger rebound in utilities, a sector that has still not done much to make up for a big dive during the abnormally mild winter," said chief economist Avery Shenfeld of CIBC World Markets.

"As expected, retailing was the standout among the larger industries, up 0.7% in real output," he added. "A strike negatively impacted the transportation sector. All told, this sets the second quarter on track for no better than 2 per cent growth, and will lead to downward revisions in the consensus for the quarter."

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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