EQT Recommits To Rice Buyout Despite Jana's Objection

EQT Corporation EQT reaffirmed its intent to acquire Rice Energy Inc RICE Monday after Jana Partners LLC advised shareholders to reject the proposed deal.

“Rice is an outstanding strategic and operational fit for EQT, which as a single entity we anticipate will benefit from a world-class inventory at the bottom of the cost curve and deliver even stronger returns to shareholders,” Natalie Cox, an EQT spokesperson, told Benzinga.

Jana had objected to the transaction, noting management as the only apparent beneficiary.

The activist hedge fund’s 13D filing recommended a rejection "unless of course EQT management is willing to forsake the millions in additional compensation they would receive for this value-destroying transaction and accept a substitute incentive plan based on the percentage of the far-fetched synergies they have promised that they actually deliver.”

However, Cox assured that executive awards, which are paid in stock based on options, restricted stock awards and performance units, “incentivize management to act in a manner that will increase total shareholder return.” What’s more, an alleged 98 percent of shareholders approved the compensation plan at the 2017 annual meeting.

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A Veritable Money-Maker?

At the same time, EQT expects more than just management to profit from the deal.

The firm projects at least $2.5 billion in synergies from the merger with the potential addition of $7.5 billion, and it predicts an increase in cash flow per share in excess of 20 percent in 2018 and 30 percent in 2019.

“The transaction will also improve the competitive positioning of EQT's businesses and enhance our ability to address the sum-of-the-parts discount,” Cox said.

Jana took issue with ambiguity around the latter.

“It is clearer than ever that EQT has no justification for putting off announcing its plan to address the Company’s substantial sum-of-the-parts discount until the end of 2018, particularly given the risk that the Company pursues a path that would enrich management, such as selling the midstream business in a taxable transaction and using the proceeds to make acquisitions to meet future production targets, rather than maximize shareholder value by spinning off the midstream business,” the 13D filing read.

The hedge fund indicated its inclination to nominate new board members to achieve its goals.