ECB hits 12-year low after $3.6 billion Ziply deal – BNN Bloomberg

Canada’s largest telecommunications company will pay $5 billion ($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 to over 3 million in the next period. four years, according to a statement from Monday.

The announcement comes less than two months after ECB disclosed an agreement to sell its stake in Maple Leaf Sports & Entertainment Ltd. to Rogers Communications Inc. for $4.7 billion. The ECB said at the time that the deal would help reduce its debt, an issue that credit agencies and analysts have flagged as a problem in recent months.

But ECB now says it will use those proceeds, an estimated net $4.2 billion, to finance most of the Northwest Fiber deal. The company also ruled out raising its dividend for all of 2025 – after 16 years of rising annual payouts – and said it would raise equity through a reduction in its dividend reinvestment plan, also known as by DRIP.

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

Chief Executive Mirko Bibic said the company did not decide to acquire Ziply “based on a one-day assessment of the stock market reaction” and noted that sell-side analysts had been speculating for some time that the company would stop raising its dividend and introduce a DRIP reduction to strengthen its capital position.

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

Talks with the management team at Northwest Fiber, which is owned by Searchlight Capital in partnership with three Canadian pension funds, only began in late September after the MLSE deal was announced, Bibic said.

“The economics of this piece are very attractive in the medium to long term,” he said, noting the lack of competitors in Northwest’s service area that offer similarly fast Internet speeds and the many potential new customers it has after Northwest Fiber recently connected. a large number of fiber homes. “Once those facts are absorbed, I think there will be a different perception of the transaction.”

By swapping its stake in MLSE for the American fiber investment, ECB is trading an undervalued minority interest in a sports asset for a business that is in its area of ​​expertise and can open up new growth prospects, Bibic told analysts during a conferences. He did not rule out the possibility of the company making more such transactions.

“Perplexed Transaction”

BCE, which does business as Bell, has been under financial pressure lately due to a slowdown in the wireless market, heavy capital spending and a high dividend — shares yield more than 9 percent. The company has spent heavily to build its fiber-optic network around Canadian cities to provide faster Internet speeds for homes and businesses, becoming more competitive in the battle for market share with cable companies such as Rogers and Quebecor Inc. Videotron.

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

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

“Canadian telecom investors are in the sector for dividends, not growth; I can get it elsewhere,” Yaghi wrote. The Northwest Fiber purchase may dilute the ECB’s free cash flow for years, he added, “and no dividend increase for the foreseeable future represents a major strategic shift.”

The market will need time to digest the news of the ECB’s foray into the US, said National Bank of Canada analyst Adam Shine, adding: “As such, we expect ECB shares to remain under pressure in the coming quarters.”

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

The company said that with this deal, it is poised to expand its fiber network to more than 12 million locations in North America by 2028.

BNN Bloomberg is owned by Bell Media, which is a division of the ECB.