Independent operators of Rona stores reject Lowe's takeover plan

A Rona store is shown in Toronto on Tuesday, July 31, 2012. (Nathan Denette / THE CANADIAN PRESS)

MONTREAL -- Dozens of independent merchants who operate 164 Rona stores across Canada have written to the head of Lowe's Companies, saying they are opposed to the U.S. retail giant's $1.76-billion takeover bid for the Quebec-based home improvement retailer.

The letter, made public Wednesday, says the independents prefer Rona's approach of combining a network of independents with more than 200 corporate stores.

"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," the letter reads.

"We respectfully say 'No, thank you' as we feel that Lowe's business model is incompatible with the one with which we have individually chosen to engage."

Lowe's approached Canada's largest home improvement company (TSX:RON) with an informal offer of $14.50 per share, but it faces opposition from both Montreal-area Rona and the Quebec provincial government, currently campaigning towards a Sept. 4 vote.

The chief executive of Lowe's, Robert Niblock, told analysts Monday that a deal wasn't "imminent" and Lowe's (NYSE:LOW) was still evaluating its options.

On Monday, Lowe's posted a 10 per cent drop in second-quarter net income, missing Wall Street's expectations, as the home improvement retailer was hurt by the timing of revenues and a charge tied to job cuts.

Lowe's also lowered its fiscal 2012 earnings and revenue outlooks.

The Quebec government, which is examining ways to thwart the Lowe's bid, has said the offer is not in the best interests of either the province or Canada.

It says Rona has played a strategic role in creating tens of thousands of jobs through store employees, suppliers and manufacturers in the province and in the rest of Canada, including 50,000 in Quebec.

The independent retailers echoed those concerns in their letter Wednesday.

"We have chosen to belong to a structure that enables us to place our trust in hundreds of local Canadian suppliers we know by their names, that invests heavily in professional development and that has ethics and the local community at its core," they said.

"We know what our customers want and believe that the Rona product offering reflects that as well as local values across the country."

Quebec's pension fund manager -- the Caisse de depot et placement du Quebec -- increased its stake in Rona by two percentage points to 14.2 per cent after Lowe's made its hostile takeover offer in July.

Last Friday, the Caisse said Rona needed to improve its performance, but wouldn't weigh in on the takeover bid.

Rona announced the closure of a dozen warehouse stores in Canada earlier this year following disappointing results. However, it said recently that a shift to smaller neighbourhood stores is paying off.

Headquartered in Mooresville, N.C., Lowe's has a small presence in Canada with only about 31 stores. Overall, Lowe's has 1,745 stores in North America, mostly in the United States.

The first Canadian Lowe's store was opened in 2007, several years after fellow American retailer Home Depot (NYSE:HD) had already established a significant presence in Canada. Home Depot currently has 180 stores across the country.

By contrast, Rona has more than 30,000 employees operating a network of nearly 800 stores under several banners as well as 14 hardware and construction distribution centres.

Rona shares closed down 67 cents, or five per cent, to $12.45 on the Toronto Stock Exchange on Wednesday.