* Analysts see chances of a Rona takeover fading with PQ win
* Rona shares slide almost 3 pct on the TSX
* PQ win unlikely to hurt miners, as party lacks majority
* Lowe’s CEO sees other options in Canada if Rona plan fails
* PQ leader reaffirms opposition to foreign takeovers
(Adds comments from Lowe’s CEO, PQ leader)
By Euan Rocha
TORONTO, Sept 5 (Reuters) – Shares of Rona Inc fell
on Wednesday as investors judged there would be far less chance
of a takeover of the Quebec-based home-improvement retailer
after the separatist Parti Quebecois won Tuesday’s provincial
election in Quebec.
Rona has already rejected a C$1.8 billion ($1.82 billion)
takeover proposal from U.S. home-improvement retailer Lowe’s Cos
. Analysts said the PQ victory narrowed the odds of any
deal being reached, sending Rona shares down more than 4 percent
in early trading on Wednesday.
The proposed deal became an election issue, with both the PQ
and Liberal Party promising to protect the interests of the
mostly French-speaking province and push for measures to curb
foreign takeovers.
“Last night’s Quebec election victory by the Parti
Quebecois, a party that has rallied against foreign ownership of
Quebec companies, may seal the deal against Lowe’s expression of
interest in Rona,” Credit Suisse analyst Gary Balter said in a
note to clients.
The PQ had promised to raise taxes and royalties on mining
firms, make foreign takeovers of Quebec companies more
difficult, and toughen laws designed to make French the dominant
language. The party won only by a slim margin, however, meaning
that it will be forced to form a minority government, making it
harder for it to push through its agenda.
Rona’s shares have consistently traded below Lowe’s proposed
C$14.50-a-share offer, and the gap widened early last month as
Lowe’s told investors a deal was “not imminent”.
Shares in Rona were down 2.6 percent at C$12.50 at 3.30 p.m.
(1930 GMT) on Wednesday on the Toronto Stock Exchange.
“Given the negative sentiment already witnessed surrounding
the potential transaction, we continue to believe any potential
acquisition remains uncertain,” said Canaccord analyst Derek
Dley in a note to clients. “And following yesterday’s election
results, this uncertainty has only increased.”
While speaking at the Goldman Sachs retail conference in New
York on Wednesday, Lowe’s Chief Executive Robert Niblock said
the company would take the Quebec election results into account
as it evaluates its options on Rona.
“Ideally, we’d like to get to the point of being able to do
due diligence to evaluate and say, is this a feasible way for us
to be able to get to scale in the market?” he said.
If the Rona acquisition plan fails, Niblock said the company
has other options that it can explore to expand its footprint in
Canada, including acquisitions and a greenfield expansion.
While the election results may hinder a takeover of Rona,
the PQ’s slim victory is unlikely to hurt the fortunes of mining
companies operating in Quebec, despite the party’s vows during
the campaign to raise taxes and royalties on miners.
“This is the perfect outcome,” said John Goldsmith, who is
vice president of Canadian equities at Montrusco Bolton in
Toronto. “The best outcome was that it would be a PQ minority
government, which means the intentions of the PQ to push ahead
with increasing royalty rates on mining companies and increasing
taxes – those are not going to get pushed through.”
PQ leader Pauline Marois reiterated her opposition to
foreign entities taking over Quebec companies at a press
conference on Wednesday, but conceded that the two main
opposition parties – whose support the PQ will need to stay in
power – have so far opposed her plan to raise taxes on miners.
UPHILL BATTLE
Lowe’s, the No. 2 U.S.-based home improvement retailer,
hired a lobbyist last week to help its proposal to take over
Rona gain traction with the federal government.
Under the Investment Canada Act, Ottawa must review any
foreign investment worth more than C$330 million and can block
deals it considers not in Canada’s best interest.
It has exercised that prerogative only twice, most recently
in 2010 when it foiled BHP Billiton’s hostile bid for
Canadian fertilizer maker Potash Corp.
Although provincial government views are not a determining
factor in foreign takeovers, most competition lawyers agree that
federal officials reviewing deals pay heed to them. Many believe
that BHP’s bid for Potash Corp failed in a large part because of
strong opposition voiced by the province of Saskatchewan, where
Potash Corp is based.
Given the acrimonious history between the federal government
and the PQ, many doubt that Ottawa will wade into a public spat
with Quebec over the fate of Rona. Previous PQ governments held
referendums in 1980 and 1995 on whether to break away from
Canada and both failed.
“We believe it would not be in the federal government’s best
interest to take on this highly public fight with Quebec over
something that really would not be all that important to
Canada,” said Janney Montgomery Scott analyst David Strasser in
a note to clients.
“The federal government and Quebec appear to have enough to
disagree on without this issue,” Strasser said. “We have to
believe that this deal continues to face an uphill battle.”
($1=$0.99 Canadian)
(Additional reporting by Allison Martell and Dhanya Skariachan;
Editing by Janet Guttsman; and Peter Galloway)
