Bell Canada, a subsidiary of Canadian telecom giant BCE, has announced its acquisition of Kirkland, Wash.-based fiber internet service provider, Ziply Fiber, in a deal valued at approximately $3.6 billion. The acquisition aims to expand Bell’s reach into the Pacific Northwest, where Ziply currently serves over 1.3 million business and residential locations across Washington, Oregon, Idaho, and Montana. BCE’s stock experienced a more than 10% decline following the announcement.
However, the company has outlined plans to expand Ziply’s reach to more than three million locations over the next four years. Ziply Fiber was previously part of a $1.35 billion deal to acquire the Northwest operations of internet and TV provider Frontier Communications. The acquisition was led by WaveDivision Capital, an investment company operated by the founder of Wave Broadband, and Searchlight Capital Partners.
The company has since built around 2,000 new fiber miles and claims to be the fastest residential internet service provider in the U.S. Ziply is managed by a leadership team with deep roots in telecommunications, including the former president of Wave Broadband and the current chairman, who previously served as CEO of Wave Broadband. According to a Ziply spokesperson, no changes are expected to its Seattle-area workforce or operations as a result of the acquisition. Scotia Capital’s Maher Yaghi commented on BCE Inc.’s recent strategic move, noting its potential to strengthen the company as a “fiber player” in North America.
Bell expands into Pacific Northwest
However, BCE’s announcement elicited cautious reactions from investors, sending its shares down by 9.7%. Yaghi expressed his concerns about the deal, especially regarding its short-term effects on free cash flow due to customer load costs and capital expenditures required to expand the fiber footprint.
BCE’s new venture allows it to operate in four U.S. states in the Pacific Northwest and provide fiber internet services to 1.3 million residential and business locations. The company is utilizing proceeds from the MLSE deal to invest in this new market, aiming for long-term growth despite anticipated free cash flow dilution until 2030. Yaghi maintains a “sector perform” recommendation for BCE shares, adjusting his target price from $50.50 to $47.50.
Other analysts also weighed in on the acquisition, with most expressing concerns about the short-term financial impacts and the resulting dilution to shareholder value. Canaccord Genuity’s Aravinda Galappatthige downgraded BCE to “hold” from “buy” with a new target of $41, down from $51, citing concerns about BCE’s near-term free cash flow generation, balance sheet leverage, and the incremental dilution from implementing a discounted dividend reinvestment plan (DRIP). Bell Canada stated that the acquisition will bring new products and technological capabilities, although specifics on how this will benefit customers were not provided.
Ziply’s current management team will be retained. “This acquisition marks a bold milestone in Bell’s history as we lean into our fiber expertise and expand our reach beyond our Canadian borders,” said Mirko Bibic, CEO of Bell Canada’s parent company, BCE.
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