The Rona paradox: Quebec Inc. buys but won't sell
Lowe's attempt to gobble up Rona Hardware met considerable resistance in 2012. (CP file photo).
Published Wednesday, December 26, 2012 12:22PM EST
Last Updated Wednesday, December 26, 2012 12:23PM EST
MONTREAL - Quebec companies went on an overseas buying spree in 2012, making a number of large-sized acquisitions, but when U.S.-based Lowe’s hardware attempted to purchase Rona Hardware, the protectionist cries rang out far and wide.
Quebec Inc. had an outstanding year on the international scene, as Valeant Pharmaceuticals, which moved to Montreal this year, bought out companies to the tune of $3.5 billion, notably Logica for $2.8 billion with some help from the Caisse de depot.
Couche-Tard bought Statoil Fueld for $2.7 billion, while Saputo swallowed up Texas-based Morningstar Foods for U.S. $1.45 billion and Cogeco bought U.S. Atlantic Broadband cable for U.S. $1.36 billion.
Others making significant acquisitions in 2012 included Genivar Inc., Stella-Jones, the Laurentian Bank and Fiera Capital.
“It's been a good and encouraging year. Quebec businesses are responding beautifully to the challenge of globalization,” said Michel Nadeau, Executive Director of the Institute on Governance.
Other business onlookers concurred.
“We have rarely seen such a favorable macroeconomic environment, that has helped enable our companies to make such transactions,” said Luc Bachand, Head of BMO Capital Markets in Quebec.
Bachand cited low interest rates, a strong Canadian dollar and ample liquidity currently available to many large Canadian companies.
The companies have taken advantage of the relative weakness of the European economy and to a lesser extent the United States to get their hands on promising companies at good prices.
“The year 2013 could be a great year because we will continue to see, in my opinion, a good climate for more transactions,” said Bachand.
According to the Quebec Solidarity Fund, 29 Quebec companies made significant acquisitions in 2012 while only 11 companies were sold here.
Not all acquisitions result in triumph, of course. Among some of the high-profiled Quebec takeover flameouts in recent years include Jean Coutu’s American adventure and Cogeco’s failed attempt to enter the Portuguese market.
The only recent Quebec takeover that met significant opposition was Couche-Tard’s purchase of SFR, which raised concerns among unions in Scandinavia.
Some foreign takeovers of Quebec companies have been positive, such as in the case of Van Houtte which continues to grow in spite of being sold to foreign interests in 2007.
But such positive examples didn’t stop the protectionist reflex from kicking in when Lowe’s offered $1.76 billion for Rona Hardware this summer.
Then-Liberal finance Minister Raymond Bachand asked the government's financial arm, Investissement Québec (IQ), to purchase Rona shares to protect it from takeover.
The upcoming IQ annual report will tell whether they heeded that request. The Caisse de depot, meanwhile bought $34.4 million in shares to raise its stake in Rona to 15 percent.
“Rona headquarters (in Boucherville) is one of the largest in the Montreal area,” said Michel Magnan, an accounting professor at Concordia University.
“I don’t think people in other countries react differently to takeovers,” he said, recalling the hostility shown by the U.S. retailer Casey's when Couche-Tard tried to gobble it up in 2010.
Canadian business experts expressed considerably less opposition to the proposed Rona takeover; however those same voices were far less anxious to see Canadian companies such as MDA, Potash and Nexen taken over by foreigners.
Some onlookers believe that it will become increasingly difficult for foreign companies to buy out Canadian interests.
Louis Hébert, Professor of Management at HEC Montreal, said that foreign companies wishing to make acquisitions in Canada will now be expected to, “receive much more attention than before from the regulatory authorities."
“If it were to happen again, Rio Tinto Alcan would not have been bought out. We would have found something to block the sale,” he said.
The main provincial parties have agreed to make it more difficult to buy Quebec companies, although it should be noted that many Quebec companies are already protected by a system which sees shareholders own dual-class shares.
The Parti Quebecois and the Liberal Party have promised to adopt a law to allow boards to weigh the interests not only of shareholders, but of other stakeholders such as customers, employees, suppliers and creditors.
Dozens of U.S. states already have similar legislation but no Canadian province has such a law as of yet.
Clemens Mayr, a lawyer specializing in mergers and acquisitions at McCarthy Tétrault, said that to be effective, this approach should also be taken by Ottawa and the other provinces. Otherwise, the market value of Quebec companies could suffer.
Mayr said that compared to the U.S. and European countries, Canada has implemented “relatively low barriers” to protect its companies from foreign acquisition.
The challenge is to find the right balance. “If we accept some of our companies make foreign acquisitions, it also stands to reason that some of our companies will also be bought up,” said Michel Nadeau. “The key is to defend the few companies that are truly strategically important.”
Rona has thus far avoided takeover but if the company does not recover soon, predators will surely resurface.
“Clearly, when you fight off a takeover attempt, you’ve got to improve performance afterward,” said the BMO’s Luc Bachand. “You must implement a business plan that gets results.”