Rona dealers criticize Lowe's takeover offer

Wed Aug 22, 2012 2:21pm EDT
 
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(Reuters) - A group of Rona Inc RON.TO on Wednesday criticized Lowe's Cos Inc's (LOW.N: Quote) proposed takeover of the Canadian home-improvement retailer and distributor, saying the U.S.-based company business model is incompatible with theirs.

In an open letter addressed to Lowe's Chief Executive Robert Niblock, merchants that operate 164 of nearly 400 affiliate or franchise Rona stores praised the company's management.

"Being independent, we have options, and that's why we sent the letter," said Michael Allen, whose family owns a 57,000-square-foot Rona store in Vancouver, British Columbia. "We're not tied to Lowe's. If Lowe's buys Rona, we can go be an independent somewhere else, with another brand, if we choose."

Niblock said on Monday that Lowe's was evaluating its options, and a deal was "not imminent." Shares closed at their lowest since Lowe's made its C$1.8 billion takeover proposal public at the end of July.

The stock slid further on Tuesday and Wednesday, and was down 4.6 percent at C$12.52 by Wednesday afternoon. Earlier, data showed Canada's retail sales dropped unexpectedly in June, and the broader stock market was lower.

POTENTIAL EXODUS

Allen, 29, runs a store opened by his father in 1987. He said the outlet employs 85 people and clears about C$10 million ($10.1 million) in sales every year. The business joined Rona in 2005, leaving Home Hardware, a competing hardware cooperative.

While Rona's complex, differentiated network bears little resemblance to the uniform big-box stores that Lowe's already operates in North America, Lowe's has said it would continue to work with dealers. If they leave in large numbers, Rona could be a less valuable asset.

Dealers sign long-term agreements with Rona, but management said on a recent conference call that a significant number of contracts come up in 2012, because of a cycle kicked off by the company's IPO.   Continued...