BCE Inc. agreed to buy an internet provider in the Pacific Northwest, making a surprising push into the U.S. market in pursuit of faster growth. The shares tumbled to an 11-year low.

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BCE shares fall to 11-year low on moves to buy U.S. internet provider, pause dividend hikes Back to video

Canada’s largest telecommunications company will pay $5 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 to more than three million in the next four years, according to a statement Monday.

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

BCE executives told analysts that with the two deals, they were trading a minority stake in a sports asset for a business that’s in their area of expertise and can open up new growth prospects. Chief executive Mirko Bibic didn’t rule out the possibility the company will do more such transactions.

“This transaction is a bold approach to growth, anchored to what we do best in a business we know really well,” Bibic told analysts. “Simply put, the operating and geographic diversification will make Bell even better.”

BCE plunged by the most in more than four years after the company said it will pause dividend increases and raise fresh equity from shareholders through a dividend reinvestment plan, also known as a DRIP, which allows investors to buy new shares at a discount. The stock fell 7.3 per cent to $41.52 in Toronto, the lowest since August 2013.

BCE, which does business as Bell, has been under financial pressure lately because of a slowing wireless market, high capital expenditures and a high dividend — the shares yield more than nine per cent. The company has spent heavily to build out its fibre optic network around Canadian cities to offer faster internet speeds to homes and business, becoming more competitive in the fight for market share with cable companies such as Rogers and Quebecor Inc.’s Videotron.

When the company announced the sale of its 37.5 per cent stake in MLSE in September, many analysts saw it as a path to reducing its debt burden. Instead, BCE says it expects its net debt leverage ratio to remain “relatively unchanged” from current levels.

Some analysts panned the latest deal. Scotia Capital analyst Maher Yaghi called it a “perplexing transaction” at a high price — more than 14 times next year’s estimated earnings before interest, taxes, depreciation and amortization, including synergies.

“Investors in Canadian telecom are in the sector for dividends and not in it to get growth; they can get it elsewhere,” Yaghi wrote. Buying Northwest Fiber is potentially dilutive to BCE’s free cash flow for years, he added, “and no dividend increases in the foreseeable future represents an important strategic change.”

BCE, which is based in the Montreal region, will assume $2 billion of Northwest Fiber debt.

The company said that with this deal, it’s poised to expand its fibre network to more than 12 million locations across North America by 2028.

—With assistance from Christine Dobby and Stephanie Hughes.

Bloomberg.com