(By Mani) Shares of Rona Inc. (TSX: RON) have not gained much after it rejected Lowe's Companies Inc.'s (NYSE: LOW) C$14.50 offer, leading to withdrawal of the offer.
The offer faced stiff opposition from numerous stakeholders, notably Quebec politicians and Rona franchisees. Most important, Rona's board was steadfast in its disinterest in pursuing any sort of transaction.
So, the ultimate question is whether Rona can be taken private. The possible answer is yes, but chances are remote.
"While RONA refused to deal with Lowe's on a potential acquisition, we do not believe this precludes another scenario in which RONA is acquired," CIBC analyst Mark Petrie said in a client note.
Many scenarios of a "made-in-Quebec" solution have been speculated on, and while it is far from clear just what form this would take, it would likely involve some consortium of existing shareholders, government investment funds and private investors.
"Any offer of more than $14.50 per share would likely be sufficient to get this transaction done. We see this type of transaction as unlikely, but possible, and certainly appealing to the current investor base," Petrie noted.
On the other hand, Rona, a home improvement retailer, remains committed to its "New Realities, New Solutions" plan, which is centered on a realignment of its network to smaller stores, improved operating efficiencies and optimized capital structure.
The plans to close a number of big-box stores (mostly in Ontario) are underway, with three closed, one closing next week and one in the fourth quarter. Thirteen sites were marked for re-development and not surprisingly, this appears to be progressing slowly.
"We still expect the company to deliver the 25 proximity and satellite stores by the end of 2013, though it is possible suitable proximity sites are a little harder to come by," the analyst said.
Meanwhile, Rona opened its first prototype RONA bannered proximity store in Alberta last month and the re-bannering of all Totem stores to RONA should be completed in the next six months or so. A new satellite store has also opened in Alberta and the company has been pleased with the early results.
Interestingly, dealer recruitment activity has picked up, with five new dealers added in the second quarter. However, Rona faces significant competition in the race to added locations and numerous other buying groups have been aggressive with this strategy.
"With the expiry of its umbrella dealer and affiliate contract expiring this fall, we do not foresee a mass exodus, but it could crack the window on some network losses. Though we consider recruitment RONA's most attractive growth strategy (aside from actual SSS growth) we do not expect a big jump in activity," Petrie added.
In addition, Lowe's may not sit idle, It may try to expand its presence in Quebec, and any move that Lowe's makes to expand its Canadian presence and growth plans would be negative for Rona.