Invesco confirmed Wednesday it is backing U.S.-based Lowe's $1.76-billion bid for Rona, Canada's largest home-improvement retailer. (Nathan Denette/Canadian Press)

Invesco Canada, one of the largest shareholders of Rona Inc., confirmed on Wednesday that it's backing a $1.76-billion bid by U.S.-based Lowe's for Canada's largest home-improvement retailer.

Invesco has a 12 per cent stake in Quebec-based Rona and said it's disappointed with how the company's management team has run the company.

Rona has refused Lowe's unsolicited takeover of $14.50 per share, saying it's not the interest of its shareholders. The deal would have given Lowe's a much bigger foothold in Canada.

The Quebec government is also opposed to the bid by Lowe's, which is expected to keep up the pressure to buy Rona despite having its offer rejected.

Pension fund manager Caisse de depot et placement du Quebec increased its stake in Rona to 14.2 per cent on Wednesday, hours after Lowe's unsolicited offer was rejected.

The Caisse, whose mission is also to contribute to Quebec's economic development, said its actions on Rona will take into consideration its shareholders, and the economic benefits of Rona's head office in the province.

The pension fund manager adds it will also respect the role of independent entrepreneurs acting as franchisees under the Rona banner.

Lowe's says institutional fund managers controlling about 15 per cent of Rona's stock have expressed support for the acquisition.

Bid 'highly politicized'

RBC Capital Markets analyst Irene Nattel said the potential acquisition is "highly politicized" with the Quebec Finance Minister Raymond Bachand saying the transaction is not in the interests of either Quebec or Canada.

The minister also suggested a coalition of investors come together to defend Rona.

"This development, which politicizes what is in effect a potential business transaction between two private companies, is only compounded by the fact that Quebec is widely expected to call Sept. 4 elections today," Nattel said in a research note, shortly before the writ was dropped for the provincial vote.

Nattel has a target share price of $13, up from $12 previously, but said the stock is likely to remain volatile in the coming weeks.

Although Rona's management appears to be poised to deliver modest earnings growth in 2012, with five consecutive years of earnings declines to 2011, a slowing Canadian housing market and outlook for sluggish consumer spending, there could be some shareholder support for the transaction at an appropriate price, Nattel said.

But she recommends staying on the sidelines as the "various parties entrench their positions over the coming weeks."