OTTAWA, May 12, 2016 — On May 12, 2016, the Bureau issued a No Action Letter (NAL) to Lowe’s Companies, Inc. (Lowe’s) and RONA inc. (RONA) indicating that the Commissioner of Competition does not, at this time, intend to make an application under section 92 of the Competition Act in respect of the proposed acquisition.
This statement summarizes the approachFootnote 1 taken by the Competition Bureau in its review of Lowe’s proposed acquisition of RONA, which was announced on February 3, 2016.
In the course of its review, the Bureau conducted interviews with numerous market participants, including home improvement retailers (both corporate owned stores and independent local dealers), buying groups, and distributors; reviewed documents and information provided by the parties and third parties; and analyzed transaction level data.
In Canada, Lowe’s and RONA (the Parties) are both retailers of home improvement products. Lowe’s entered the Canadian market in 2007. At the time the proposed acquisition was announced, Lowe’s had 42 corporate stores in British Columbia, Alberta, Saskatchewan, and Ontario, and RONA had 496 stores across Canada that are a mix of 236 corporate stores and 260 dealer owned stores. Although RONA has stores across Canada, its largest provincial footprint is found in Quebec, where it had 238 stores.
Unlike Lowe’s, RONA also operates a wholesale distribution business that supplies both its retail network, including dealer‑owned RONA stores, and other third party wholesale customers. As such, the Bureau considered whether the proposed acquisition raised any vertical concerns. The Bureau’s review revealed that many buying groups, alternative wholesalers and competing retail banners are, and would remain readily available to supply RONA’s wholesale customers with distribution of home improvement products and other retail support services.
The Bureau identified a number of local markets where Lowe’s and RONA stores are likely direct competitors as a consequence of their relative proximity to each other. In assessing the competitive impact of the proposed transaction, the Bureau considered various possible local geographic markets by adjusting for the presence or absence of different competitors, including the Parties, other big box retailers and specialty stores.
The Parties compete for the sale of items across many product categories, including lumber and building materials, paint, fashion fixtures, electrical and plumbing supplies. At any one time, some proportion of consumers only require the purchase of items from a single product category, while consumers engaged in more extensive projects may require, for example, a mix of paint, fashion fixtures, and plumbing supplies. Apart from price‑based comparisons, market participants indicated that box stores that sell items from multiple product categories offer consumers the convenience of a one‑stop shop, whereas specialty stores which focus on the sale of only a single product category, may offer a higher level of customer service. The competitive impact of excluding and including specialty stores as direct competitors to box stores was tested to assess the competitive effects of the transaction.
Under the various possible market definitions tested by the Bureau, it was determined that there were sufficient effective remaining competitors in each local market, including national retailers such as Home Depot, Home Hardware, and Canadian Tire, such that the proposed acquisition is unlikely to result in a substantial lessening or prevention of competition.
The Bureau also examined to what extent the proposed transaction could prevent the development of future competition between the Parties due to Lowe’s future entry. The Bureau determined that such entry did not satisfy the timely, likely and sufficient threshold set out in the Merger Enforcement Guidelines. In any event, the examination also found that effective competition from Home Depot, Canadian Tire and strong regional big box operators would remain in all local markets in which competition between Lowe’s and RONA could have likely developed in the future.
Based on the presence of a sufficient number of effective remaining competitors in each local market, the Bureau concluded that the proposed transaction is unlikely to result in a substantial lessening or prevention of competition in retail home improvement in any local market in Canada.
This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.
However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau’s analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case-by-case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.
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