BCE, Inc. (BCE) shares are taking a hit on Monday, plummeting over 9% following a major announcement from its subsidiary, Bell Canada. Bell has entered into a definitive agreement to acquire Ziply Fiber, a move that signals a strategic expansion into the US fiber market. Alongside the acquisition news, BCE also revealed a pause in dividend growth, a decision that has further impacted investor sentiment.
The acquisition of Ziply Fiber, valued at approximately $3.65 billion, will see Bell take full ownership of the company. The move is strategically driven, aiming to expand Bell’s fiber network into the US and add around 1.3 million fiber locations. This acquisition will propel Bell to become the third-largest fiber internet provider in North America, with a total of 9 million fiber locations, aiming to reach over 12 million by 2028.
Bell plans to utilize the proceeds from the recent sale of its ownership interest in Maple Leaf Sports & Entertainment to fund the acquisition. If the sale doesn’t close before the acquisition, the company will leverage a loan facility and funds from a discounted treasury dividend reinvestment plan (DRP).
Mirko Bibic, president and CEO of BCE and Bell Canada, expressed his enthusiasm for the acquisition, stating, “This acquisition marks a bold milestone in Bell’s history as we lean into our fibre expertise and expand our reach beyond our Canadian borders. Fibre is at the heart of what we do, and we’re proud to connect people and businesses and enable them to do more through our fibre networks. By bringing together Bell and Ziply Fiber’s exceptional talent, we’ll accelerate our growth while continuing to deliver significant value for our customers and shareholders.”
Despite the growth strategy, Bell’s decision to pause dividend growth until the company reaches its targeted dividend payout and net debt leverage ratios has sparked concerns among investors. The company is committed to maintaining the current annual common share dividend of $3.99 per share until the end of 2025, but the pause in growth reflects a focus on achieving long-term value creation for shareholders.
The market response to the news has been swift, with BCE stock trading down significantly at $29.16, a clear indication of investor uncertainty surrounding the impact of the acquisition and the dividend pause. The coming weeks will be crucial for BCE as investors assess the long-term implications of these strategic moves on the company’s financial performance and growth trajectory.
