TORONTO (Reuters) - Canadian home-improvement retailer and distributor Rona Inc, which earlier this year rejected a takeover offer from U.S.-based rival Lowe’s Cos Inc, said on Friday that Chief Executive Robert Dutton was stepping down, a surprise move that came two days after disappointing results.
Rona said Chief Financial Officer Dominique Boies would serve as acting CEO while the company looks for a successor. Rona shares jumped amid speculation that the Quebec-based company might be in play.
Fund manager Irwin Michael, whose I.A. Michael Investment Counsel Ltd is one of Rona’s top shareholders, said Dutton’s “completely unexpected” departure gives the company a chance to rethink its plans.
“The fact is, Rona needs change,” he said. “They have got to be open to a number of things. They have to consider shareholders as well - the stock has done very, very poorly along with the very poor results.”
In an unusual strategy for hardware stores, where big has long seemed beautiful, Rona has put a shift away from big box stores at the center of its turnaround strategy. It is opening more “satellite” and “proximity” outlets that run 5,000 to 35,000 square feet, rather than the 100,000 square feet-plus found at most big boxes.
Lowe’s spokeswoman Chris Ahearn said there had not been any recent talks with Rona.
“Since we withdrew our proposal to work with the Rona board, there have been no further discussions,” she said.
Acting chief executive Boies joined Rona in 2011, after five years with the Caisse de dépôt et placement du Québec, Rona’s top shareholder.
The Caisse, which has a dual mandate of managing the Quebec pension plan and contributing to economic development, boosted its stake after Rona made the Lowe’s proposal public. Caisse owns over 15 percent of Rona’s outstanding shares, according to the latest Thomson Reuters data.
Shares of Rona were up 7.9 percent at C$10.09 on Friday afternoon on the Toronto Stock Exchange, off an intraday high of C$10.25. The broader market was little changed.
Canaccord Genuity analyst Derek Dley said traders were probably covering short positions, given the chance that a new CEO might improve Rona’s performance, and speculation that Dutton’s departure could clear the way for a sale.
“A lot of investors had been looking for a change-up at the top with Rona for quite some time,” he said. “They have lagged the market.”
But Dley said he still did not think a deal for Rona was likely: “At the end of the day, that was a board decision, not just the CEO’s decision.”
Michael warned that an extended search for a successor could further erode Rona’s market share and value.
Rona, which reported a surprise drop in quarterly profit on Wednesday, did not say why Dutton was leaving.
Dutton joined the company in 1977, became chief executive in 1992, and oversaw much of Rona’s transformation from modest Quebec hardware distributor to nation-wide retailer.
During Dutton’s tenure, annual sales skyrocketed from C$450 million to more than C$4.8 billion. But sales at established stores have dropped in several recent quarters.
Lowe’s withdrew its C$1.8 billion proposal, which never made it to formal-offer stage, amid opposition from Rona, politicians in the retailer’s home province of Quebec and a large group of Rona’s independent dealers.
Under the new strategy, Rona initially planned to shut 10 of its biggest stores and split up 13 others by the end of 2013.
But on Wednesday, Rona postponed the closing of five big-box stores to better coordinate with the new openings and to cushion the financial impact of the move to smaller stores.
Editing by Kenneth Barry, Bernadette Baum, Janet Guttsman, Gary Hill