Adding to a flurry of fiber-focused M&A activity, Canada's BCE Inc. has inked a deal to acquire Ziply Fiber in a transaction valued at $7 billion Canadian dollars (US$5.04 billion). That price comprises about C$5 billion ($3.6 billion) in cash and roughly C$2 billion ($1.44 billion) of assumed debt.
Bell Canada, a subsidiary of BCE, will tap into the $4.2 billion of proceeds it received from selling its stake in Maple Leaf Sports & Entertainment to Rogers Communications to help fund the deal.
Kirkland, Washington-based Ziply Fiber was established in 2020, after the company acquired the northwest operations of Frontier Communications for about $1.35 billion. Ziply Fiber currently delivers services to about 1.3 million fiber locations in parts of Washington, Oregon, Idaho and Montana, and has plans to extend that to 3 million fiber locations within the next four years.
Ziply Fiber, which counts Cable One among its investors, has used its growing XGS-PON network to bring forth symmetrical 2 Gbit/s and 5 Gbit/s broadband services, and has launched a pricey 50-Gig service underpinned by Ethernet connections. Fueled by its fiber build, Ziply recently expanded into colocation services that take advantage of more than 200 existing central offices and other brick-and-mortar facilities.
Related:Fiber build helps spawn Ziply's new multi-state colocation service
BCE said the acquisition will give it a foothold in what it views as a "large, underpenetrated US fiber market." BCE says the deal will put it in position to expand its fiber footprint to more than 12 million locations in North America by 2028.
The transaction is expected to close in the second half of 2025. Post-close, Ziply Fiber will operate as a separate business unit and will continue to be headquartered in Kirkland.
Ziply Fiber deal could put pressure on Verizon to boost Frontier bid
BCE's play for Ziply Fiber follows a wave of recent fiber-focused acquisitions and partnerships in the US, including Verizon's proposed deal for Frontier Communications, T-Mobile's investment in Lumos, and T-Mobile's acquisition of Metronet.
New Street Research's initial estimate found that the BCE-Ziply Fiber deal represents $3,788 per fiber location – well above the $2,400 per location Verizon is poised to pay Frontier. Frontier is facing some backlash from shareholders on the belief that Verizon's proposal undervalues the deal.
Last week, Frontier stated its case for the deal in the form of a 32-page presentation holding that Verizon's offer is a "highly attractive price" and removes some inherent risks associated with any plan that would see Frontier going it alone.
Related:Ziply Fiber launches 50-Gig service for $900 per month
According to Seeking Alpha, CNBC reported today that Verizon is not expected to raise its bid for Frontier ahead of the November 13 shareholder vote. Speaking last week during a meeting with analysts held in conjunction with Verizon's Q3 2024 results, Verizon CEO Hans Vestberg stressed that Frontier ran a competitive process. "We were asked for a best and final. We gave the best and final," Vestberg said. "We have a signed agreement and a contract for a merger. Now it's up to Frontier's shareholders to make the vote … We're going to see what's going to happen, but we feel really confident that this is fair and good for all stakeholders."
Still, some industry watchers believe BCE's play for Ziply Fiber could cause Verizon to reconsider.
New Street Research analyst Jonathan Chaplin said in a research note that BCE's move for Ziply Fiber removes the Canadian operator from bidding for Frontier, at least for now. BCE, he pointed out, was "Party E" that was competing against Verizon at the end of the Frontier sales process. New Street also believes Frontier is worth more than Verizon's offer of $38.50 per share.
"On balance, this is good," Chaplin said of the BCE-Ziply Fiber deal. "The valuation signal is worth a good deal more than the loss of a near-term bidder. We think it would be very difficult for investors to accept the price that Verizon has offered after seeing this transaction. This is true as long as investors have the resolve to say 'no' without an underbid. Our base case is that they will, particularly after seeing this transaction (but it isn't certain)."
Related:Cable One invests $50M in Ziply Fiber
KeyBanc analyst Brandon Nispel also believes BCE's offer for Ziply Fiber could spur action from Verizon.
He said Verizon will either need to boost its offer for Frontier to get the greenlight from shareholders or face the possibility that Frontier shareholders will reject the deal. "We think both are not great outcomes," Nispel explained.
MoffettNathanson, which has already argued that Verizon's offer of $38.50 per share for Frontier is "full and fair," has a different view.
"On an apples-to-apples basis, the value per fiber passing that Verizon has agreed to pay for Frontier and BCE has agreed to pay for Ziply are virtually identical. This supports the idea that Frontier achieved a full and fair value in its deal with Verizon," MoffettNathanson analyst Nick Del Deo explained in a research note (registration required) issued today.
Noting that Frontier and Ziply have different current fiber availabilities, penetration rates and different portions of share in their respective footprints that can be eventually be upgraded to fiber, Del Deo estimates that Verizon has agreed to pay $2,000 per eventual fiber passing for Frontier, while BCE appears to have agreed to pay $2,100.
Editor's note: The story has been updated with commentary and analysis from MoffettNathanson.