Mr. Gordon Flatt of Stirling reports

OPEN LETTER TO LOWES (LOW: NYSE) AND TO RONA (RON: TSX); LOWES BID UNDERVALUES RONA PREFERRED SHARES (RON.PR.A: TSX); TAKES CARE OF EVERYONE EXCEPT RONA PREFERRED SHAREHOLDERS

Lowe's Companies Inc., a Fortune 50 U.S.-based multinational company with sales of over $56-billion, has come to Canada to take over, take private and change control of Rona Inc. Why are these descriptions important? Because they mean that certain things happen: common shareholders get a takeover premium for their shares and directors and officers get paid handsomely (over $40-million) by accelerating payments that would otherwise take many years for them to receive, if at all.

Let's consider fundamental principles of Canadian and Quebec corporate law. If Rona's common shares are collectively worth $2.6-billion, then any higher-ranking financial instrument is worth, at minimum, its face or par value. But that is not how the transaction has been structured and, as a result, retail preferred shareholders will be forced to accept $5 per share -- less than its face or par value of $25. This is oppressive.

Moreover, the Rona board of directors owes a fiduciary duty of care to all stakeholders. It has addressed the common shareholders' interests with an over-100-per-cent premium, debentureholders which stand to gain better ratings for their interests and employees by undertaking to maintain employment, but it has failed in its fiduciary duty to preferred shareholders.

In a similar situation in Canada, RioCan REIT preferred shares, with almost identical terms as the Rona preferred shares and also with a March 31, 2016, maturity, are being redeemed at their par value of $25. The Caisse de depot et placement du Quebec, one of Canada's pre-eminent pension fund managers, supports the deal seemingly knowing that the preferred shares are held principally by Quebec retail investors and Quebec pensioners, the very people the Caisse represents.

Recently, a Quebec-based retail investor who owns Rona preferred shares wrote to the company: "I feel the Rona board in unanimously recommending the Lowe's takeover has failed to act fairly and equitably in the interests of all stakeholders and has only acted in the interest of common shareholders .... Do not shortchange the small retail investor."

As background, The Stirling Funds owns Rona preferred shares. It also owns Lowe's common shares and are supportive of Lowe's strategic entry into Canada and its takeover offer of Rona. It believes Lowe's has: (1) a strong, focused and highly competent management team; (2) are well positioned in its market segments; and (3) will prosper significantly as the economy continues to recover and the housing and renovation cycle normalizes. Stirling is not hostile to Lowe's (in fact the opposite). Its issue lies in the deal structure. It would seem bad business for Lowe's to shortchange the very group of investors it hopes to win as customers to save a rounding error on a $2.7-billion purchase.

Next steps

To further support its efforts to seek fair remedies for the Rona preferred shareholders, Stirling has retained European-based OstVast Advisory, a specialist adviser to global institutions in complex financial and security law matters.

"It is unclear why Lowe's would uniquely diminish the value of the Rona preferred shareholders, while handsomely rewarding everyone else," stated Fredrik Skoglund, partner and head of research of OstVast Advisory. "I would assume the Quebec Securities Commission would not wish to establish precedents like this."