Low loonie makes Canadian firms like Rona targets for takeovers

TORONTO -- The plight of the loonie and low interest rates can make Canadian companies ripe for the pickings, observers said Wednesday as U.S.

See Full Article

home improvement chain Lowe's announced its acquisition of Quebec retailer Rona.

Companies paying in U.S. dollars receive a discount thanks to the Canadian dollar, said Perry Sadorsky, an associate professor of economics at York University's Schulich School of Business in Toronto.

"For international companies, it's very attractive to buy Canadian companies," he said.

Retail consultant Wendy Evans predicted the Lowe's-Rona announcement is likely to be the first of other takeover deals in the offing.

"Particularly with our dollar, this market looks like very good value so there will be others," she said.

The loonie has not closed above 80 cents US since late June last year. As of Wednesday it was hovering above the 72-cent US mark.

The $3.2-billion deal by Lowe's to buy Rona is partly motivated to pursue a strategic opportunity to become the largest home renovation retailer in Canada, said Jean Rickli, a retail analyst with the JC Williams Group.

But when the price tag translates to roughly US$2.3 billion, the deal is more affordable, he said.

Historically, there is often a bump in mergers and acquisitions when the dollar slides, Sadorsky said.

On the flip side, Canadian companies have purchased American targets when the loonie sells at a premium, said Laurence Booth, a finance professor at the Rotman School of Management at the University of Toronto.

He points to acquisitions made by TD Bank (which bought The South Financial Group Inc. in 2010) and Royal Bank (which acquired City National Corporation in November 2015).

The low loonie can also incentivize Canadian companies, which may not be able to afford to acquire entities abroad, to consider purchasing local ones, said Sadorsky.

Already this year, Suncor Energy offered a multibillion-dollar deal to take over Canadian Oil Sands. The offer expires Friday.

Sadorsky anticipates more domestic action this year in the oilpatch.

Canada's current low interest-rate environment provides further enticement, he said, as companies can borrow money for any potential deals at cheaper rates.

But some believe there is little correlation between low interest rates, a low dollar and an increase in mergers and acquisitions.

In the third quarter of 2015, Canadian companies made 186 foreign-target acquisitions worth a total of $60 billion compared to 172 acquisitions over the same time the year before for $42 billion, according to the most recent quarterly report by Crosbie, a Toronto-based investment banking firm that tracks Canadian merger and acquisition activity.

In the same time frame last year, Canadian companies acquired 1.6 times more companies outside the country's borders than foreigners acquired companies within Canada, the report found.

It's important to recognize that while the exchange rate can offer a discount, it's the prospects for profit that often motivates acquisitions, said Booth.

A sliding loonie can also mean that some Canadian firms are not as appealing to prospective buyers.

"The change in the value of the currency is also strongly correlated with the attractiveness of Canadian firms as foreign targets."

With files from Ross Marowits in Montreal



Advertisements

Latest Economic News

  • The best and worst ways to budget for the holidays

    Economic CBC News
    Presents. Parties. Travel. The holidays can drain our energy, and our bank accounts — even if we try our best to prevent it. We checked in with some of Canada's top personal finance experts for their best budget tips, but also their biggest blunders, because even the smartest money-handlers know holiday pressure can lead to poor decisions. Source
  • Angry Air Miles collectors demand back points they rushed to use on 'junk'

    Economic CBC News
    On Thursday, Air Miles cancelled its controversial expiry policy. But the move is only fuelling the fury for many collectors who used their points on stuff they didn't really want to beat the clock. Source
  • Death threats and abuse for woman leading Brexit court fight

    Economic CTV News
    LONDON -- Gina Miller is paying the price for going to court. The financial entrepreneur says she has received death threats and racial and sexual abuse since she won a High Court ruling forcing the British government to seek Parliamentary approval before leaving the European Union. Source
  • Air Miles rep: 'Options' may exist for panic redeemers

    Economic CTV News
    Air Miles Canada may have thought abandoning its unpopular expiration policy would calm the cardholder backlash from those who rushed to spend miles, but were frustrated by full flights, sold out merchandise, and long customer service delays. Source
  • Irving mill faces steep fines after being charged with polluting St. John River

    Economic CTV News
    SAINT JOHN, N.B. -- Irving Pulp and Paper is facing 15 counts of polluting the St. John River at its mill near the Reversing Falls tourist attraction. An Environment Canada spokesman says Irving has been charged under federal Fisheries Act provisions on the deposit of harmful substances into fish-bearing water. Source
  • Costco investigated over allegations pharmacy directors accepted kickbacks for certain brands

    Economic CBC News
    Costco is being investigated by Ontario's Ministry of Health for its compliance with the province's legislation on selling pharmaceutical and over-the-counter drugs. The health ministry investigation comes after the Ontario College of Pharmacists (OCP) announced it would hold disciplinary hearings for two Costco pharmacy directors because of allegations that they accepted Source
  • Costco to be investigated by government over compliance with drug-selling rules

    Economic CTV News
    TORONTO -- Costco is being investigated by Ontario's Ministry of Health for its compliance with the province's legislation on selling pharmaceutical and over-the-counter drugs. The health ministry investigation comes after the Ontario College of Pharmacists announced it would hold disciplinary hearings for two Costco pharmacy directors because of allegations that they accepted kickbacks for stocking certain brands. Source
  • United Airlines will pay US$2.4 million to settle with SEC

    Economic CTV News
    WASHINGTON -- The parent company of United Airlines will pay US$2.4 million to settle civil charges by securities regulators over flights that were started to help an official who oversaw one of the airline's hub airports. Source
  • 4 of world's biggest cities have plans to get diesel off their streets

    Economic CBC News
    Four of the world's largest and most polluted cities have decided to ban diesel cars and trucks from their streets by 2025. The mayors of Paris, Mexico City, Madrid and Athens announced the commitment in Mexico City on Friday at the C40 Mayors' Summit, a meeting of city leaders. Source
  • U.S. health care tab hits $3.2T; fastest growth in 8 years

    Economic CTV News
    WASHINGTON -- The nation's health care tab grew at the fastest rate in eight years in 2015, driven by the coverage expansion in President Barack Obama's law and by costly prescription drugs, the government said Friday. Source