BCE falls to 12-year low after $3.6 billion Ziply deal

(Bloomberg) — BCE Inc. will pause dividend growth next year as it makes an unexpected foray into the U.S. with the purchase of a Pacific Northwest internet provider, a move that sent the company’s shares to a 12-year low.

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Canada’s largest telecommunications company will pay 5 billion Canadian dollars ($3.6 billion) for Northwest Fiber LLC, which does business as Ziply Fiber and has 1.3 million locations in Washington, Oregon, Idaho and Montana, with plans to expand in to expand to more than 3 million over the next four years, it said in a statement on Monday.

The announcement comes less than two months after BCE reached a deal to sell its stake in Maple Leaf Sports & Entertainment Ltd. to Rogers Communications Inc. for 4.7 billion Canadian dollars. BCE said at the time that the deal would help reduce its debt, something credit agencies and analysts had flagged as a problem in recent months.

But BCE now says it will use those proceeds, an expected net amount of C$4.2 billion, to finance the bulk of the Northwest Fiber deal. The company also ruled out increasing its dividend for all of 2025 – after raising its payout annually for 16 years – and said it would raise new equity through a discount to its dividend reinvestment plan, also known as DRIP.

The plan to halt dividend increases, a key part of the investment thesis for shareholders of Canada’s major telecommunications companies, sent BCE shares plummeting by the most in more than four years. Shares fell 9.7% to close at C$40.47 in Toronto, their lowest closing price since May 2012.

Chief Executive Mirko Bibic said the company did not decide to acquire Ziply “based on an assessment of one day’s stock market reaction,” noting that sell-side analysts had speculated for some time that the company would do so would pause dividend growth and introduce a DRIP discount to strengthen its capital position.

“We’re in this for the long haul,” he said in an interview, adding that “pursuing a fiber growth agenda is the right strategy and the core of what BCE does really well.”

Discussions with the management team of Northwest Fiber, owned by Searchlight Capital in partnership with three Canadian pension funds, only began in late September after the MLSE transaction was announced, Bibic said.

“The economics of this venture are very attractive in the medium to long term,” he said, citing the lack of competitors in the Northwest service area offering similarly high internet speeds and the many new potential customers the company has acquired following the recent deal Northwest Fiber has gained a large number of homes on fiber optic connection. “Once these facts are taken into account, I think there will be a different perception of the transaction.”

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