DBRS Comments on Lowe’s Interest in Acquiring Rona

DBRS notes the confirmation by RONA Inc. (RONA or the Company) and Lowe’s Companies Inc. (Lowe’s) that RONA received an unsolicited, non-binding proposal from Lowe’s to acquire all of Rona’s issued and outstanding shares at a price of $14.50 per share. RONA’s board of directors unanimously determined that Lowe’s proposal is not in the best interest of the Company’s stakeholders.

DBRS believes that no rating action is necessary at this time, since it does not appear that any transaction is imminent. It is important to note, however, that Lowe’s proposal did receive the support of institutional shareholders of RONA representing approximately 15% of RONA’s outstanding shares. Lowe’s has stated that the two companies have met and discussed potential relationships over the past year, including a previous proposal by Lowe’s to acquire RONA on December 15, 2011, which was also rejected by RONA’s board of directors. At this stage, it appears Lowe’s has expressed a continued desire to proceed with a board-supported transaction, but there are no assurances that any agreement will be reached.

Should Lowe’s ultimately be successful in acquiring RONA, DBRS believes that it would likely have positive implications for the Company’s creditors, based on DBRS’s view that Lowe’s credit risk profile is significantly stronger than RONA’s. This view is based on Lowe’s market position as the second-largest home improvement retailer in North America (with over 1,745 stores and USD 50 billion in revenue) and its relatively strong credit metrics. Furthermore, the acquisition of RONA would enhance Lowe’s size/scale and geographic diversification by adding 300 stores across Canada to its existing 31.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Companies in the Merchandising Industry, which can be found on our website under Methodologies.For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.