MONTREAL – A battle for control at Rona Inc. could be put off for six months after the home renovation retailer called an annual meeting in May and said it would look into replacing some of its directors.
The Quebec-based hardware company said Thursday it has asked a head-hunting firm seeking a new CEO for Rona to also identify potential candidates for directors as it looks to increase representation from outside Quebec.
Spokeswoman Michelle Laberge said the actions were already underway when Invesco Canada, its second-largest shareholder, announced Wednesday that it would seek to sweep out and replace the existing board.
“It was in the plan that we were going to announce the AGM so that was always in the plan,” she said in an interview.
“When they showed their intention (Wednesday) we just thought we would clarify that right off the bat and also clarify the fact that we have been in a process of identifying new board members for the upcoming AGM.”
Laberge said executive search firm Korn/Ferry International was initially asked to seek new directors in September. Finding a replacement for Robert Dutton was only added to its mandate after the long-time chief executive resigned last week.
“We proactively started to look into new members because we had some investors who wanted us to bring new people on board.”
By announcing the annual meeting, Laberge said Rona has precluded the possibility of an earlier special meeting that was requested by the dissident shareholder.
Invesco, which holds about 11 per cent of Rona’s stock, declined to comment Thursday.
It is among the shareholders who are unhappy with years of weak results at Rona and the board’s unwillingness to entertain a $14.50 per share cash takeover bid from U.S. rival Lowe’s that represents about a 45 per cent premium from where the company’s stock has traded for much of the past year.
Rona (TSX:RON) said in its proxy circular last year that $100 invested in the company at the end of 2006 was worth little more than $42 five years later.
IA Michael Investment Counsel, manager of ABC Funds, which owns about three million shares representing 2.5 per cent of Rona, supports Invesco’s call for change, but is concerned by how long the process could take.
“You’re talking a good six months from now. A lot can happen in the economy and various events so clearly we’re disappointed in seeing it dragged out too long,” president Irwin Michael said Thursday.
Laberge wouldn’t say how many directors could be replaced, but none of the current 11 members has expressed an interest in not seeking re-election. There are also two vacancies.
The board is led by lawyer Robert Pare and includes Geoff Molson, CEO of the Montreal Canadiens, and Quebec business leaders who have been affiliated with Alimentation Couche-Tard (TSX:ATD.B), Rotisseries St-Hubert and Cascades (TSX:CAS).
Many companies invite large shareholder to have seats on the board. But Laberge said that move “wasn’t part of the conversation we had internally.”
She also wouldn’t say how many seats could go to people outside Quebec, but added candidates must meet certain criteria, including having a knowledge of the retail industry.
Rona will announce its list of director candidates when it issues its proxy circular in March. Any shareholder can submit its own nominees.
The retailer isn’t the first Canadian company to face a shareholder revolt this year. Canadian Pacific Railways (TSX:CP) dumped it CEO and replaced its board earlier this year after shareholders led by U.S. hedge fund manager Bill Ackman mounted a challenge over their dissatisfaction with CP’s performance.
Rona said it hopes to avoid a proxy battle.
“We want to be civilized and do things the right way and we are just opening conversation with our investors and hoping that we can have civilized conversations,” added Laberge.
The company is pursuing its business strategy to improve results over the next 12 to 18 months by growing the number of smaller, neighbourhood stores and closing some big box locations.
Rona currently has nearly 30,000 employees and 830 locations under its banner, giving Rona a bigger reach in Canada than Home Depot or Lowe’s, the No. 1 and No. 2 home improvement retailers in the United States. Home Depot has just 180 stores across Canada and Lowe’s has about 31 Canadian locations, out of 1,745 across North America.
On the Toronto Stock Exchange, Rona’s shares lost 37 cents, or 3.21 per cent, at $11.15 in afternoon trading.