Lowe’s will acquire all of the issued and outstanding common shares of Rona for C$24 per share in cash, and all of the issued and outstanding preferred shares of Rona for C$20 per share in cash. The total transaction value is C$3.2 billion (US$2.3 billion). The offer represents a premium of 104% to Rona’s closing common share price on February 2 and a 38% premium to Rona’s 52-week high of C$17.36. Rona is one of Canada’s largest retailers and distributors of hardware, building materials, and home renovation and gardening products, with locations across Canada. It operates a multiformat, multibannered portfolio of stores. In its retail chain, the company has 236 corporate-owned stores using three formats under three different banners. In its distribution, Rona serves 260 dealer-owned stores utilizing nine distribution centers across Canada.

Source: Company reports

As a point of reference, Lowe’s began growing organically in Canada in 2007 and now operates 42 stores in the country, primarily in Ontario and, to a lesser degree, in the western part of the country. Lowe’s launched an e-commerce site in 2012. With a strong foundation in place, the company is looking to scale the Canadian business and grow its profitability. The agreement is based on a strategic rationale for both companies. The deal provides an entry for Lowe’s into Quebec, which represents almost 25% of the Canadian home improvement market, but where Lowe’s has no presence. It also combines Lowe’s scale with Rona’s local expertise. The Canadian home improvement market is estimated to be worth C$45 billion. It is a stable market with a forecasted CAGR of 3.9% from 2014 to 2018. A high level of home ownership and well-developed infrastructure support the growth. The deal is expected to close in the second half of 2016.

Source: Company reports

Lowe’s has identified over C$1 billion of opportunities to further increase revenue and operating profitability in Canada, which the company believes will allow it to potentially double operating profitability in Canada over five years. These opportunities include: Enhancing customer relevance by utilizing its strengths as a leading omni-channel home improvement company and drawing on its customer-experience-design capabilities. Expanding customer reach and serving a new portion of the market by applying its expertise in certain product categories, including its best-in-class appliance offering. Driving increased profitability in Canada by leveraging shared supplier relationships and enhanced scale, as well as Lowe’s private label capabilities, in addition to eliminating Rona’s public company costs. Lowe’s expects the deal to be accretive to earnings in the first year following the close of the acquisition. The Canadian operations will be led by Sylvain Prud’homme, President of Lowe’s Canada. The senior management teams of both companies will work to assure a smooth and effective transition.