Jana Takes Stake In EQT Energy To Kill Rice Deal

Having previously disrupted the energy sector with a breakup of El Paso Corporation Preferred Stock (NYSE: EP-C) operations, Jana Partners LLC is taking a swing at natural gas.

The activist hedge fund’s latest 13F revealed a stake in Resolute Energy Corp REN, and on Monday, it announced a new position in EQT Corporation EQT.

In collaboration with Atlas Energy Group executives, Jana took a 5-percent stake in the East Coast energy company with the intention of thwarting its pending $6.7 billion purchase of Rice Energy Inc RICE, according to a Dow Jones report.

Not only does Jana consider the deal price overvalued, but it looks to redirect EQT’s focus to a breakup of pipeline operations to transform the core company into an exploration & production firm. The pipelines already trade publicly under EQT Midstream Partners LP EQM and EQT GP Holdings LP EQGP.

A completed Rice acquisition, which would establish the largest natural-gas producer in the U.S., would bear tax implications delaying EQT’s reorganization for years.

Jana had held shares of the stock prior to the deal’s announcement but had been unaware of EQT’s behind-the-scenes transaction.

Disappointments Abound

The firm was as disappointed as peer investors, whose reactions prompted a 13-percent drop in EQT value before the stock rebounded three days later. Meanwhile, Rice saw a 35-percent pop after the deal’s announcement. A Jana-driven pullout by EQT could bolster Rice’s value through a termination payment of $255 million.

Jana’s moves shortly follows its victory at Whole Foods Market, Inc. WFM, which announced its sale in June.

Its Monday announcements triggered a 3.4-percent pop in EQT value, after which shares promptly fell below Friday close price. At the time of publication, it was trading at $60.50 — up 3.2 percent on the day.

Update: On Wednesday afternoon, an EQT spokesperson told Benzinga:

"EQT seeks to maintain an open dialogue with investors and respects their opinions and perspectives.

"Through its continued improvements in operational efficiencies and strategic acreage acquisitions, including the most recently announced proposed acquisition of Rice Energy, EQT is monetizing its vast natural gas reserves to deliver enhanced development and productivity in the Appalachian Basin.

"The proposed Rice transaction also includes significant midstream assets that would be integrated into EQT Midstream Partners (EQM). With respect to the request to separate the production and midstream businesses, and as previously disclosed, EQT has acknowledged that there is a sum-of-the-parts discount and EQT management has committed to evaluating options and devising a plan to address this discount by the end of 2018."

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