BCE’s stock falls to an 11-year low due to its decision to acquire a US internet provider and freeze dividend increases.

BCE Agrees to Buy Northwest Fiber LLC for $5 Billion

In a move that has sent shockwaves through the telecommunications industry, BCE Inc., Canada’s largest telecom company, has agreed to acquire Northwest Fiber LLC, an internet provider in the Pacific Northwest, for $5 billion. This surprise push into the U.S. market is part of BCE’s strategy to drive growth and expansion.

Acquisition Details

The acquisition, which was announced on Monday, will see BCE pay $5 billion for Northwest Fiber LLC, also known as Ziply Fiber, which has 1.3 million locations in Washington, Oregon, Idaho, and Montana. The company plans to expand its fibre network to more than three million locations in the next four years.

Funding the Deal

BCE will fund most of the deal with the proceeds from the sale of its stake in Maple Leaf Sports & Entertainment Ltd. (MLSE), the owner of the Toronto Maple Leafs and other sports franchises, to Rogers Communications Inc. This transaction was announced in September.

BCE’s Strategy

According to BCE executives, this acquisition is part of the company’s strategy to drive growth and expansion into new markets. Chief executive Mirko Bibic said, "This transaction is a bold approach to growth, anchored to what we do best in a business we know really well… Simply put, the operating and geographic diversification will make Bell even better."

Impact on BCE Shares

However, the news has not been well-received by investors. BCE shares plunged 7.3% to $41.52 in Toronto, hitting an 11-year low. This drop is the largest decline in over four years.

Analyst Reaction

Some analysts have panned the deal, calling it a "perplexing transaction" at a high price. Scotia Capital analyst Maher Yaghi said, "Investors in Canadian telecom are in the sector for dividends and not in it to get growth; they can get it elsewhere… Buying Northwest Fiber is potentially dilutive to BCE’s free cash flow for years."

Impact on BCE’s Financials

The acquisition will also see BCE assume $2 billion of Northwest Fiber debt. This will likely put pressure on BCE’s financials, with some analysts predicting that the company’s net debt leverage ratio may increase.

Outlook for BCE’s Expansion

Despite the challenges posed by this deal, BCE is optimistic about its prospects in the U.S. market. The company said it is poised to expand its fibre network to more than 12 million locations across North America by 2028.

Conclusion

The acquisition of Northwest Fiber LLC marks a significant departure for BCE Inc., which has traditionally focused on the Canadian market. While this move may pose challenges in the short-term, it could also drive growth and expansion for the company in the long-term.

Recommended Reading

• Rogers nears $7 billion financing deal with investor it won’t name
• After Rogers’ MLSE deal, Leafs-Raptors-Jays IPO a near slam dunk

Join the Conversation

Share your thoughts on BCE’s acquisition of Northwest Fiber LLC in the comments section below. What do you think about this move, and how will it impact the telecommunications industry?