Activists take control of EQT board in proxy fight

By Scott Deveau and Naureen S. Malik on 7/10/2019

NEW YORK (Bloomberg) --The activist investors at EQT Corp are poised to take control of the largest U.S. natural gas producer’s board, according to people familiar with the matter.

Brothers Toby and Derek Rice, who sold Rice Energy Inc. to EQT for $6 billion less than two years ago and together own 3% of the company, are expected to have won seven seats on the 12-member board ahead of a shareholder meeting slated for Wednesday, based on preliminary tallies, the people said, asking not to be identified because the matter is private. The number of seats could still change as more votes come in ahead of the meeting, the people said.

The result would put an end to a nine-month battle at the natural gas driller. The Rice brothers had been seeking to replace the majority of EQT’s board and install Toby Rice as chief executive officer. The push has been resisted by EQT, which said the move would destabilize the company and knock its turnaround off track.

The “board only valued financial expertise and that led to the dramatically poor operational performance of EQT,” said Steve Schlotterbeck, who oversaw the Rice Energy takeover as EQT’s CEO and remains a shareholder. “Toby can fix that.”

Schlotterbeck, who resigned in March of last year because of disagreements with the board over his pay, said in an interview that he’s had a few discussions with Toby Rice and told him “he would win in a landslide.”

EQT shares jumped as much as 3.8% in after-market trading in New York. Representatives for the Rice brothers and EQT declined to comment.

The Rice team’s victory marks the beginning of a dramatic transformation for EQT, which gained the top spot among U.S. gas explorers after buying Rice Energy. The brothers have argued the company has underperformed since.

Though EQT shares had plunged as the company cut production targets after the acquisition, management under CEO Robert McNally was implementing a plan to turn things around. Investors apparently weren’t convinced.

A win for the dissidents will highlight the urgency for producers to demonstrate that they can translate their drilling success into shareholder returns. While American gas explorers have been remarkably adept at ramping up output and turning the U.S. into a net exporter, their track record of doing so profitably has been spotty at best.

The Rice brothers are touting the more intensive use of technology at EQT to improve the efficiency of its drilling. If they end up implementing that approach successfully, it may point to a brighter future for the exploration and production sector, in which operational rigor leads to improved financial performance. But failure is likely to confirm the view of many investors who have soured on fracking in recent years.

The brothers garnered the support of the company’s largest shareholder, T. Rowe Price Group Inc. in their battle to revamp the board. They also won backing from several other investors, including D.E. Shaw & Co., Kensico Capital Management Corp. and Elliott Management Corp.

The Rice brothers’ push for change was supported by prominent shareholder advisory firm Institutional Shareholder Services, while another advisory firm, Glass Lewis & Co., threw its support behind management.

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