Lowe's to sell its Canadian business to New York private equity firm

Toronto, Canada - June 3, 2019:  Lowe's store in Toronto, Canada.  Lowe's Companies, Inc. is an American retail company specializing in home improvement
Lowe's Companies Inc. is selling its Canadian retail business to a U.S. private equity firm. (Getty Images) (JHVEPhoto via Getty Images)

Lowe's Companies Inc. (LOW) is selling its Canadian retail business.

The U.S.-based company announced Thursday that it has entered an agreement with private equity firm Sycamore Partners to sell its Canadian retail business for $400 million in cash and "performance-based deferred consideration." Details of the deferred consideration were not provided in the statement released on Thursday afternoon.

"The sale of our Canadian retail business is an important step toward simplifying the Lowe's business model," Lowe's chief executive and chairman Marvin Ellison said in a news release, adding that the Canadian division represents seven per cent of the company's full year sales outlook and a 60 basis points of dilution to the operating margin outlook.

"By executing this transaction, we will intensify our focus on enhancing our operating margin and (return on invested capital), taking market share in the U.S. and creating greater shareholder value."

Lowe's Canadian business includes 450 corporate and independent dealer stores under several banners, including RONA, Lowe's Canada, Réno-Dépôt and Dick's Lumber.

Sycamore Partners managing director Stefan Kaluzny said Lowe's Canada and RONA will be a standalone company headquartered in Boucherville, Que.

"We look forward to working with the company's management team to build on its 83-year history as a leading Canadian home improvement business serving families, builders, and contractors in their communities across the country," Kaluzny said in a statement.

Sycamore Partners is a New York-based private equity firm focused on retail, consumer and distribution-related investments. The company owns a range of retailers, including Express, Loft and Ann Taylor, Hot Topic, Staples Canada, Stuart Weitzman and Nine West Holdings.

The transaction is expected to close in early 2023. Lowe's said it expects to record a pre-tax, non-cash impairment charge of approximately $2 billion related to its Canadian retail business.

Lowe's stock was up nearly 2 per cent in after hours trading following the announcement.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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