Lowe's Bids Off to RONA Board

Lowe’s Companies Inc. (LOW), the world’s second-largest home improvement retailer, recently withdrew its acquisition deal with Canadian company RONA Inc. The non-binding deal was dated July 8, 2012, according to which Lowe’s had to acquire all the issued and outstanding shares of RONA at C$14.50 per share in cash.

However, RONA’s Board of Directors could not identify the benefits that the deal could have provided to all its shareholders as well as Canada due to which, this friendly acquisition was unlikely. As a result, Lowe’s had to quit this deal, in spite of its continued efforts to involve the RONA Board of Directors in the merger.

Management still believes that the merger of Lowe’s and Rona would have been logical in terms of business and would have generated considerable value to both the abovementioned companies’ shareholders. Moreover, management affirmed that Lowe’s will keep its focus in the Canadian market and will provide excellent products and services to its consumers in this region.

Recently, Lowe’s posted second-quarter 2012 earnings of 65 cents per share, which includes the negative impact of 3 cents related to a shift in comparable weeks, but excludes a charge of 1 cent related to the reduction in headcounts.

Excluding the negative impact of shift in comparable weeks, earnings came in at 68 cents. The Zacks Consensus Estimate for the quarter was of 70 cents a share.

Net sales for the quarter dropped 2% to $14,249 million from $14,543 million delivered in the year-ago quarter. A shift in the comparable week resulted in $259 million or 1.8% of the decline in sales. Analysts polled by Zacks had expected revenue of $14,421 million.

Following its disappointing second quarter results, Lowe’s trimmed its financial outlook, as it remains concerned about the housing market and the sluggish economic recovery.

Going forward, we believe that Lowe’s expenses relating to big remodeling projects will likely remain under pressure until the housing market stabilizes and consumer-spending rebounds.

Currently, we have a long-term ‘Neutral’ rating on the stock. However, Lowe’s, which competes with The Home Depot Inc. (HD), holds a Zacks #4 Rank, which translates into a short-term Sell rating for the next 1-3 months.

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