Major renos for Rona board as shareholders push for change
A man carries building supplies from a Rona store in Toronto on Tuesday, July 31, 2012. (The Canadian Press/Nathan Denette)
Published Monday, January 21, 2013 10:10AM EST
Last Updated Monday, January 21, 2013 5:29PM EST
MONTREAL -- Rona is renovating its board of directors by adding a new chairman and several members from outside Quebec as it moves to avoid a fractious showdown with shareholders at this spring's annual meeting.
The company's two largest shareholders -- the Caisse de depot et placement du Quebec and Invesco Canada, which together control about a quarter of all shares -- have agreed to support the slate of Rona candidates.
Toronto-based Invesco, which owns about one-tenth of Rona Inc. (TSX:RON) shares, had called for change after the chain reported dismal financial results last quarter and its long-time chief executive resigned.
Invesco had supported the unsuccessful $1.76-billion takeover attempt launched last year by Lowe's Companies Inc. (NYSE:LOW), the second-largest U.S. home improvement retailer after Home Depot Inc. (NYSE:HD).
Rona's new chairman is Robert Chevrier, 69, who has held similar posts at other Quebec-based companies including Richelieu Hardware (TSX:RCH) -- a North American company based in the Montreal area that sells to retailers like Rona.
Current chairman Robert Pare will remain on Rona's board but two other directors, Alain Michel and Patrick Palerme, were resigning immediately.
Two others will not stand for re-election to make way for additional nominees. Ultimately, there will be eight new members on the Rona board, which will be enlarged by two positions to 14 directors.
"The corporation is now at a critical inflection point in its history where it has to refocus on its core competencies to unlock value built over the years for its shareholders, dealer-owners and other stakeholders," Chevrier said Monday.
He thanked Pare for his efforts and said his inclusion in the revamped board will be of benefit to Rona.
The company announced Monday that it has hired a consulting firm to accelerate progress on strategic priorities announced in December, when the company said it would continue to look for ways to improve profitability. Details of that review will be announced Feb. 21.
Industry observers are eagerly awaiting the results of that process for signs of progress in turning around the struggling Canadian home-improvement retailer.
Derek Dley of Canaccord Genuity said that while the board changes are positive, they don't change the overall challenges facing Rona.
"It's a step in the right direction, but you're still facing a very weak Canadian renovation spending market and in that context there still remains some headwinds for Rona," he said from Vancouver.
Dley believes Rona will replace interim CEO Dominique Boies, who was selected when long-time chief executive Robert Dutton resigned last fall. The analyst also doesn't think the company will ultimately sell to American rival Lowe's, whose acquisition bid was thwarted by the old Rona board.
"I think they're still going to go down the path of pursuing their strategic priorities and looking to turn margins around, focusing on rolling out smaller proximity stores and kind of going that route," he added.
IA Michael Investment Counsel, manager of ABC Funds, the fourth-largest shareholder, also supports Rona's new board, which it believes will consider options including a sale to Lowe's or another third-party.
"I think, ultimately, you'll have a more intellectually honest board where they will deal with third-party interest as well, which the previous board didn't even consider," company president Irwin Michael said in an interview.
Michael said the agreement of Rona's major shareholders avoids a "major donnybrook" at the annual meeting by including support from the Caisse on behalf of Quebec Inc. -- a term used to describe the major players in Quebec's business community.
"We're pleased that everyone sort of sucked it in a little bit and they came to an agreement here...to reconstitute the renovation of Rona."
The Caisse said it won't have a specific appointee on the new board but said the changes in the board are an important step in repositioning the company, but noted "much work remains to be done."
"Rona, as we've always said, must move quickly to improve performance," said spokesman Maxime Chagnon.
Rona said four new directors will join its board immediately, including a former head of TD Bank's insurance arm and Guy Dufresne, a former CEO of ArcelorMittal Mines Canada, who at 71 exceeds Rona's previous mandatory retirement age of 70.
Rona said the board has abolished the retirement requirement.
One unidentified new member will be nominated for election by shareholders, while two existing members won't seek re-election.
The company said it wants to increase the number of board members from outside of Quebec, but only four of those named so far come from outside the province, including Bernard Dorval, former deputy chairman of formerly TD Canada Trust, and two others from Toronto and Barry Gilbertson from London, England.
Irene Nattel of RBC Capital Markets said the new board is a "step in the right direction," but noted that the macro-economic environment remains challenging and is not making things easier as consumers reign in big ticket discretionary spending.
She expects Rona to sell its commercial and professional segment.
Rona currently has nearly 30,000 employees and 830 locations under its banner, giving it a bigger reach in Canada than Home Depot or Lowe's, the No. 1 and No. 2 home improvement retailers in the United States.
Home Depot has just 180 stores across Canada and Lowe's has about 31 Canadian locations, out of 1,745 across North America.
At Richelieu, which manufactures and distributes hardware products for the home improvement and manufacturing industries, Chevrier's departure creates a vacancy that will be filled by Marc Poulin, president and CEO of Sobeys Inc.
"We wish Robert Chevrier the greatest success in his new responsibilities with Rona, a company we have been proud to count among our customers for several years," said Richard Lord, Richelieu's president and chief executive.
Rona shares closed up 36 cents, or 3.13 per cent, at $11.86 on the Toronto Stock Exchange on Monday, although still well below the $14.50 peak after the Lowe's takeover bid became public and before the U.S. retailer withdrew from the attempt to acquire Rona for $1.8 billion or $14.50 per share.