A group of Rona Inc RON.TO on Wednesday criticized Lowe's Cos Inc's (LOW.N) 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.
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.
"We want to reinforce your view that it may not be a good idea for you to buy Rona, after you appeared to state your doubts about the deal on Monday, while you were announcing your financial results," said the letter.
Rona has said repeatedly that it is not for sale, and its stock has consistently traded below Lowe's proposed C$14.50 a share offer.
QUEBEC ELECTION ISSUE
The proposal has become an election issue in Rona's home province of Quebec, with both the governing Liberal party and challenger Parti Quebecois criticizing the offer and promising new rules to crack down on foreign takeovers.
Dealers own about 10 percent of Rona's shares, the company has said, and in recent quarters dealer outlets have performed better than their corporate counterparts.
"We have signed long-term agreements with Rona based on the company's unique business model, which values the co-existence of big-box outlets and neighborhood stores, with the diverse needs and values of our customers front of mind," said the letter.
(Reporting by Allison Martell)