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(Reuters) - U.S. home improvement retailer Lowe's Cos Inc (LOW.N) agreed to buy Canada's Rona Inc RON.TO for C$3.2 billion ($2.28 billion), winning over Rona's board with a far higher offer than an unsolicited bid more than three years ago that was opposed by the company and Quebec politicians.
The deal will put Lowe's in a stronger position to compete with Home Depot Inc (HD.N) in Canada's more-than $30 billion home improvement market.
Lowe's, which withdrew a C$1.8 billion offer for Rona in September 2012, said on Wednesday it had made key commitments, including moving the headquarters of its Canadian business from Toronto to Rona's home base in the Montreal suburb of Boucherville, Quebec.
It also said it would retain the vast majority of Rona's employees, keep the brand and ramp up distribution to independent dealers, many of whom had opposed the previous deal.
Lowe's previous attempt to take over Rona became a hot-button issue in Quebec.
Quebec's economic development minister said it would not be in the interest of the Liberal government to block the new deal, despite a call from the opposition Parti Québécois to reject it.
Asked on a call with analysts why Lowe's had made a new offer, Chief Executive Robert Niblock said Rona was "a much better business today."
After years of disappointing sales, Rona has been closing unprofitable stores and generally streamlining operations under Chief Executive Robert Sawyer. Sales at established stores have risen five quarters in a row.
Lowe's push into Canada comes a year after Target Corp (TGT.N) exited the country after less than two years due to supply chain and other issues.
The big difference is that Lowe's is buying an established business, while Target was largely starting from scratch.
Lowe's, the world's No. 2 home improvement chain, had only 40 of its 1,850 North America stores in Canada as of March. Rona has about 700 stores.
Home Depot has 182 Canadian stores, its website shows.
Lowe's will pay C$24 per share for Rona's common shares - more than double the stock's close on Tuesday.
Rona's largest shareholder, Quebec public pension fund Caisse de dépôt et placement du Québec, said it would accept the offer. The Caisse holds about 17 percent of Rona, Thomson Reuters data shows.
BMO Capital Markets analyst Peter Sklar said the deal would likely win regulatory approval.
Rona's shares were trading as high as $C23.57 on the Toronto Stock Exchange, their highest since July 2007. Lowe's shares were down nearly 8 percent at $66.25 on the New York Stock Exchange.
Reporting by Amrutha Gayathri and Ramkumar Iyer in Bengaluru; With additional reporting by Allison Lampert in Montreal and Kevin Dougherty in Quebec City; Additional writing by Jeffrey Hodgson; Editing by Maju Samuel, Ted Kerr and Jonathan Oatis