Rona Inc. received and rejected a $1.76-billion unsolicited takeover offer ($14.50/share) from US-based Lowe’s Companies, causing its share price to soar 20% to $14.19 in trading this Tuesday on the Toronto Stock Exchange.
Rona disclosed this offer during a brief statement today, confirming months of speculation on a potential takeover. Rona’s board unanimously agreed that the offer was not in the best interests of Rona and its stakeholders. Rona CEO Robert Dutton emphasized Rona’s Canadian roots, and argued that its stakeholders want to see it remain a Canadian company. This sentiment was echoed by Quebec’s finance minister, Raymond Bachand, who issued a statement that the takeover does not appear to be in the interests of either Quebec or Canada.
A hostile takeover attempt remains a possibility. Prior to today’s surge in stock price, Rona’s stock was valued at a 26% discount to its net assets, making it the only North American home-products retailer with a market cap over $500 million to trade lower than book value. Rona reported a net loss of $78 million CDN in 2011 after 4 straight declines in annual profit. As of April 2012, Rona was trading at 0.74 times the value of its assets minus liabilities, compared with an average price-to-book ratio of 3.5 for home product store owners in North America with market values higher than $500 million. According to data compiled by Bloomberg, Rona was valued at half the industry average (with its equity and net debt valued at 5.3 times earnings before interest, taxes, depreciation, and amortization).