Major Investor Tears Into EQT Leadership, Endorses Rice Team
From a press release:
D. E. Shaw & Co., L.P., on behalf of certain investment funds advised by it that in the aggregate own an approximately 4.5% interest in the common stock and equivalents of EQT Corporation (the “Company” or “EQT”) (NYSE: EQT), today sent a letter to the Board of Directors (the “Board”) of EQT expressing its support for the Rice Team and its concerns regarding recent statements made and actions taken by EQT.
The full text of the letter can be read below:
January 11, 2019Board of DirectorsEQT Corporation625 Liberty AvenuePittsburgh, PA 15222
Dear Members of the Board:
I am writing to you on behalf of certain investment funds advised by D. E. Shaw & Co., L.P. We have been shareholders of EQT Corporation (the “Company” or “EQT”) (NYSE: EQT) for over three years and today own over 4.5% of the Company, because we believe in the significant potential of the asset base.
Like many shareholders, we have been disappointed in the current management’s poor execution and are excited about the prospect of Toby Rice and the Rice Team returning to lead the Company and deliver the performance improvements shareholders deserve.
We support the Rice Team because they are seasoned operators with a proven track record of delivering peer-leading results on the exact assets that EQT owns today. Our sentiment appears to be widely held among shareholders; Tudor Pickering Holt & Co. recently wrote that there was “near unanimous support for the Rice Proposal”1 and EQT’s former CEO publicly stated that he “agree[s] fully with the Rice plan” and that “[…] Toby Rice is a true operator and the best person to help the company capture the full value of the asset base.”2
We hope the Board will engage constructively with the Rice Team and reach a resolution. Unfortunately, management’s January 7th letter announcing a “New EQT” is little more than an announcement of layoffs. Despite using the word “new” fourteen times in the letter, the truth is that (1) all management positions are filled by legacy EQT employees who have been promoted to their respective roles despite bearing responsibility for the execution mishaps to date and (2) the Chairman of EQT has been on the Board for 23 years.
Further, the letter glosses over mistakes that have been made and insists that management has a “track-record of success” and is “industry-leading.” No matter how well-intentioned, current management has not only failed to deliver on the potential of EQT’s asset base, but also lacks the relevant operational experience to deliver going forward, which we believe has resulted in a severely depressed stock price.
The reality is the current management and board leadership have: (1) spent $1.85 billion (~40% of the current market capitalization) on acreage acquisitions that appear unlikely to be drilled for the foreseeable future; (2) pledged they could deliver $2.5 billion to $10 billion in synergies from the Rice acquisition but have failed to deliver on any of those synergies; (3) missed their capex budget by ~$300 million last quarter; (4) bought back $500 million of stock at levels substantially higher than today’s market price when operations were running severely over budget; and (5) announced a drilling and completion budget achieving ~$1,250 / lateral foot in 2018 and targeting ~$900 to $1,000 / lateral foot in the future – a target that represents no improvement on the plan laid out in April 2017, before the Rice merger, and stands in stark contrast to the sub-$700 / lateral foot achieved by Rice in 2017 on the exact same acreage at 11,000-foot laterals.
We are also concerned that the Company is laying off over 100 employees without first receiving input from the Rice Team. Given what has occurred to date and the context of the ongoing discussion between the Company and the Rice Team, we believe it is only appropriate that EQT refrains from making any other decisions regarding future strategy until a resolution is reached with the Rice Team.
If a constructive resolution isn’t reached swiftly, then the answer is simple: let shareholders vote. For decades, EQT has held its annual meeting in April. It was only moved to June last year to allow shareholders time to hear the results of the committee findings on whether the company would spin off its midstream business. The meeting should be held in April this year as it traditionally has been – especially given the urgent matters facing the Company.
We continue to believe in the potential of EQT. But all of the Company’s stakeholders deserve better. We look forward to your response and an update to the market regarding your discussions with the Rice Team.
Quentin KoffeyPortfolio ManagerD. E. Shaw & Co., L.P.
About the D. E. Shaw Group
The D. E. Shaw group is a global investment and technology development firm with more than $50 billion in investment capital as of December 1, 2018, and offices in North America, Europe, and Asia. Since our founding in 1988, our firm has earned an international reputation for successful investing based on innovation, careful risk management, and the quality and depth of our staff. We have a significant presence in the world's capital markets, investing in a wide range of companies and financial instruments in both developed and developing economies.