The horribly timed attempt by home improvement giant Lowe’s to acquire Rona ensured economic nationalism featured prominently in Quebec’s provincial election campaign. The return of the Parti Québécois to power now ensures a renewed hostility to foreign takeovers. Companies considering investing in Quebec will need to carefully assess the changing rules. They may decide it’s just not worth the trouble.
No doubt when Lowe’s, based in Mooresville, N.C., made its $1.8-billion move on Rona, it misread the political climate in Quebec and underestimated protectionist inclinations there. But the company can be forgiven for failing to anticipate that the Boucherville, Que.–based firm would be treated as a national resource, off-limits to foreign control. “You’re selling hardware. Who cares?” says William Watson, an economics professor at McGill University. “There must be some Quebec companies that somehow are not iconic.”
Yet the idea of the Quebec-born national home-and-garden chain falling into American hands mobilized the provincial government to attempt to block the takeover. Simultaneously, the powerful Caisse de dépôt et placement du Québec pension fund, with its murky partial mandate to support economic development, boosted its holdings of Rona stock without explanation. The PQ called on the Caisse to declare its 14% stake in Rona not for sale. The PQ leader and premier-elect Pauline Marois then said she wants to mandate the Caisse to officially protect Quebec companies from takeovers. “It’s a very political use of pension funds,” Watson says. Further, an economic policy grounded in resisting takeovers could discourage Quebec companies from growing. The possibility of being bought out can be a powerful incentive not to stand pat.
The counterargument, which carries much weight in Quebec, is that the province has lost too many important companies to foreign control, just to see jobs cut and capital investment disappear. It’s “naïve” to put too much faith in the intentions of acquisitors, says Michel Nadeau, executive director of the Institute for Governance of Private and Public Organizations in Montreal. “It’s very easy to say that selling hammers and nails is not a strategic resource like potash,” Nadeau says. “But it’s important for the Quebec economy. We want to have head offices and decision centres.”
The PQ’s mandate is as a minority government, which should limit its sovereigntist agenda. But the Liberals already played their card, and even the centre-right runner-up Coalition Avenir Québec shares most of the PQ’s interventionist leanings. A political consensus across the province seemingly opposes Lowe’s. And since the federal government may not be willing to pick a fight with Quebec over a relatively minor business transaction, some analysts think the takeover is as good as dead. Marois, however, will ultimately find herself constrained by the dreadful state of public finances in Quebec, which is Canada’s most indebted province. While the PQ might have no political reservations about intervening in the markets, the province’s creditors certainly do.