By Austen Hufford 

Lowe's Cos. said it would acquire Canadian home-improvement chain Rona Inc. for about 3.2 billion Canadian dollars (US$2.3 billion) in a move to expand its operations in Canada, less than four years after Rona rebuffed an buyout offer from the home improvement chain.

Lowe's will pay about C$24 (US$17.15) for each outstanding common share and C$20 for each outstanding preferred share of Rona. The deal may include debt. The price represents a 104% premium over Rona's closing common share price of C$11.77 on Tuesday.

Rona is a Canadian retailer and distributor of hardware, home renovation products and building materials. The company operates a network of 236 corporate and 260 dealer-owned stores with nine distribution centers throughout Canada.

"The team at Lowe's has presented us with an excellent plan that enables our company to maintain its brand power while at the same time leveraging Lowe's global presence to build upon and expand our reach," Rona's Chairman Robert Chevrier said.

Rona's acceptance of the deal is a turnaround from the cold shoulder it gave Lowe's previous 2012 offer to buy the company for C$1.76 billion (worth about US$1.75 billion at the time). That offer represented a 37% premium over Rona's stock price. At the time, Rona said the unsolicited proposal wasn't in the best interests of the company or its shareholders.

In response to the higher cost and higher premium of the new deal, Lowe's Chief Executive Robert Niblock said Rona is worth more today.

"They've done quite a bit to improve their operations" Mr. Niblock said on a call to discuss the deal. "It's a much better business today"

The 2012 offer also faced challenges from the Quebec government, with its then finance minister telling reporters that Rona was a "strategic asset" that shouldn't fall into foreign hands.

As part of the deal announced Wednesday, Lowe's said it agreed to several stipulations related to keeping jobs and operations in Canada. Lowe's said it would keep employing the "vast majority" of current employees and will base Lowe's Canadian operations in Boucherville, Quebec.

Since 2012, the Canadian dollar has depreciated against the American dollar falling from roughly parity to C$1.39 for each US$1, making the deal relatively cheaper for Lowe's.

Lowe's Canada, which entered the country in 2007, operates 42 stores. With the Rona acquisition included, the Canadian operations would have had revenue of C$5.6 billion in 2015. Sylvain Prud'homme, current president of Lowe's Canada, will continue to lead the combined operation.

The deal is expected to close in the second half of the year and will add to Lowe's earnings. Lowe's said it has identified over C$1 billion of ways to increase revenue and operating profitability in Canada, including using shared suppliers and introducing appliances into some Rona stores.

Recently, Lowe's has benefited from higher home values and more people moving into new homes, which both spur spending on home projects.

Write to Austen Hufford at austen.hufford@wsj.com

 

(END) Dow Jones Newswires

February 03, 2016 09:28 ET (14:28 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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