© Reuters. The logo of Calgary-based Enbridge, one of North America’s largest energy infrastructure companies, is displayed during the LNG 2023 energy trade show in Vancouver, British Columbia, Canada, July 12, 2023. REUTERS/Chris Helgren/File Photo

By Mrinalika Roy

(Reuters) – Enbridge (NYSE:) Inc shares tumbled nearly 7% to their lowest in more than four years on Wednesday, as some analysts questioned the financial impact of the Canadian pipeline operator’s surprise $14 billion bid to buy three utilities from Dominion Energy (NYSE:) doubling its gas distribution business.

The move to acquire East Ohio Gas, Questar Gas, and Public Service Co of North Carolina will make Enbridge the largest gas utility by volume in North America, with the unit accounting for a bit less than a fourth of the company’s overall business mix.

The deal is seen as a bet on the future of in a regulated market even as energy companies and consumers are transitioning to a greener future by phasing out fossil fuels.

But some analysts were surprised at the timing, the scale and impact such a deal would have on the company’s already leveraged balance sheet. Late on Tuesday, Moody’s (NYSE:) cut Enbridge’s outlook to negative.

“I do think the market was caught a bit off guard, as this wasn’t on my bingo card,” Morningstar analyst Stephen Ellis said. “Management had a realistic approach towards allocating capital, so a smaller transaction (perhaps a deeper investment in Canadian LNG?) would have been more expected,” Ellis said.

Enbridge struck the deal just over a month after CEO Greg Ebel told analysts the company saw ‘tuck-in’ acquisition opportunities ‘across the board’.

In a note, Ellis described the acquisition a “defensive move” and said despite the size of the deal Enbridge left its 5% annual EBITDA growth expectation over the medium term unchanged, which suggests that the earnings contribution is “replacing weaker results on the liquids side of the business.”

By late morning, Enbridge shares were down 5.5% at C$45.50, while the benchmark Canadian share index was off 0.5%. Rival TC Energy (NYSE:) was down 2.7%. Enbridge is selling new shares at a discount of 7.2% to its Tuesday close to part-fund the transaction.

“While Enbridge paid a reasonable price, high leverage and funding gap could act as overhang,” Wells Fargo analysts said in a note.

The transaction deploys some of company’s near term balance sheet capacity and hence the company will be even more selective on how it deploys remaining investment capacity, the note added.

In July, rival TC Energy said it would focus on transporting natural gas, as it announced the split of the business into two listed companies, saying they would be more valuable apart.