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What Will Become of Home Renovation Supplier?

Rona Hardware Store

It contained just 62 words, but the statement spoke volumes about the immediate future of the current board at home renovation retailer Rona Inc., a key supplier at the retail level to the building and construction industry throughout Canada.

“Investco Canada Ltd., on behalf of investment funds and client accounts managed by it, announces today its intent to requisition a meeting of shareholders of RONA Inc. for the purpose of removing RONA’s current directors and electing new directors in their place,” the statement read. “Investco Canada exercises control or direction over 12,339,911 common shares of RONA, representing approximately 10.16% of RONA’s outstanding common shares.”

When a shareholder with this level of influence makes such a drastic move, it becomes plain that things cannot go on as they are.

Investco is not acting on its own. For instance, IA Michael Investment Council, manager of ABC Funds, which controls around 2.5 per cent of the company, is supporting the move.

Granted, the success of otherwise of the latest move is far from certain, especially given doubts about how Caisse de depot et placement du Quebec, the firm’s largest shareholder, and independent store owners who collectively control a large part of Rona shares, will respond.

Furthermore, it remains to be seen who will be put forward as new directors, let alone what operational changes they would pursue.

Rona Hardware Store

Still, the latest developments remove any doubt as to the level of dissatisfaction with the current board.

Given the company’s dreadful operating performance, this more than understandable. Third quarter operating profit announced on November 7 was down by almost one quarter year-on-year, and the company failed to hit seven out of ten financial performance targets.

Making matters worse was that the board offered a ‘deterioration in the renovation and construction market across the country’ as an excuse.

With figures showing a boom in condominiums and reasonable activity levels in detached housing and a pickup on non-residential construction, the board’s reasoning does not reflect reality.

What’s more, all this comes on top of a rejection of an earlier takeover proposal just three months ago from US Based rival Lowe’s Companies, Inc. of $14.50 per share. The current share price is lagging at around $11.53.

Rona’s immediate future is unclear, and it will be better for the industry if these matters are dealt with soon, though any takeover by Lowe’s would reduce competition in the market.

If anything, at least it is positive that these issues will now be brought to a head.

By Andrew Heaton
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