Analysis: In Rona bid, Lowe's learns meaning of "faux pas"

Thu Aug 2, 2012 2:05pm EDT
 
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By Euan Rocha and Allison Martell

TORONTO (Reuters) - A proposal by Lowe's Cos Inc LOW.N, the world's No. 2 home improvement chain, to buy Canada's Rona Inc RON.TO for C$1.8 billion ($1.8 billion) has come at an inopportune moment.

The offer, rejected by the do-it-yourself retailer, is raising hackles in Rona's home province of Quebec, where the ruling Liberals face a tough challenge from the pro-independence Parti Quebecois in an election campaign that began this week.

Both parties have come out against the proposal. Half of Rona's 30,000 employees are based in French-speaking Quebec, and the Liberal finance minister, Raymond Bachand, says a sale would not be in the best interests of either Quebec or Canada.

"It strikes me on first blush as really bad planning on the part of Lowe's. If there is one thing we've learned, it is never try and get Investment Canada approval during an election. They couldn't have planned this worse," said one Canadian lawyer, who specializes in competition law and regulatory reviews.

The Investment Canada Act requires Ottawa to review foreign investments worth more than C$330 million and gives it the power to block a deal that is not in the country's best interests.

That has happened only twice, most recently in 2010, just months ahead of federal elections, when the government foiled BHP Billiton's BHP.AX C$39 billion hostile bid for fertilizer maker Potash Corp POT.TO. Strong opposition from Potash Corp's home province of Saskatchewan was a big factor in that decision.

The lawyer, who is not involved in the deal but who asked to go unnamed to protect business relationships, said an acrimonious history between Canada and Quebec complicates matters for Ottawa.

"The way Canada is set up, great deference is paid to Quebec and Quebec's interests. If the province really wants to put its foot down and reject this deal, Ottawa is going to be very, very hesitant to go against the wishes of Quebec, because it would just create an uproar," he said.   Continued...

 
A specially designated parking spot for Lowes.com shoppers is pictured in the parking lot at the Lowe's Home Improvement Warehouse in Burbank, California August 15,2011. REUTERS/Fred Prouser