U.S.-based home improvement store Lowe's Companies Inc. is selling its entire Canada branch of hardware stores to private equity firm Sycamore Partners for $400 million.
The Canadian division, with its headquarters in Boucherville, Quebec, includes Ace, Dick's Lumber, and Réno-Dépôt. In 2016, Lowe's added Rona and Lowe's Canada to its roster for a whopping $3.2 billion — and now, the sale of these two companies, combined with the former three, is $2.8 billion below the purchase price.
The 450 total locations represent only 7% of Lowe's entire 2022 sales and around 60 basis points of dilution over its full 2022 year operating margin outlook, according to a statement from the company. This disappointing performance comes after the closing of 34 locations in 2019.
After the deal, Lowe's Canada and Rona will become one independent company, with its headquarters remaining in Quebec. The plan is to transition to operating solely under the Rona name rather than Lowe's Canada in order to become established as a separate entity.
Lowe's Chief Executive Officer Marvin Ellison said in a statement that the sale is an attempt to "simplify the Lowe's business model." A report from Globe and Mail notes that this shift could "shake up" the Canadian home improvement market as independent vendors cut ties with Rona in favor of other hardware retail chains such as Castle Building Centres Group and Home Hardware Stores.
"By executing this transaction, we will intensify our focus on enhancing our operating margin and ROIC, taking market share in the U.S., and creating greater shareholder value," Ellison said. He also anticipates improved sales and a "strong profit flow-through in the third quarter" as a result of the sale.
The transaction is expected to close in the first quarter of 2023, pending regulatory approvals, and includes a performance-based deferred consideration in addition to the $400 million sale price.