Eqt Corporation · NYSE:EQT
Eqt — Proxy Contest (October 2017)
33 slides from Eqt's proxy contest presentation, Oct 24, 2017
Slide 1: Schedule 14A Proxy Statement - EQT Corporation
SCHEDULE 14A Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant Filed by a Party other than the Registrant Check the appropriate box: Preliminary Proxy Statement Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(
Slide 2: JANA Partners Opposes EQT Corporation's Proposed Acquisition of Rice Energy Inc.
JANA Partners Opposes EQT Corporation’s Proposed Acquisition of Rice Energy Inc. October 23, 2017 1
Slide 3: Disclaimer
Disclaimer THE VIEWS EXPRESSED HEREIN REPRESENT THE OPINIONS OF JANA PARTNERS LLC (THE "SHAREHOLDER"), WHICH OPINIONS ARE BASED EXCLUSIVELY ON PUBLICLY AVAILABLE INFORMATION WITH RESPECT TO EQT CORPORATION (THE "ISSUER"). THESE MATERIALS ARE FOR GENERAL INFORMATIONAL PURPOSES ONLY. THEY DO NOT HAVE
Slide 4: Background
Background ► JANA Partners Founded in 2001; typically works collaboratively with companies to unlock shareholder value; aligned with all shareholders Owns approximately 6% of EQT Corporation (“EQT”) and opposes proposed acquisition of Rice Energy Inc. (“RICE”) by EQT ► JANA has partnered in its
Slide 5: The Case To Reject Proposed RICE Acquisition
The Case To Reject Proposed RICE Acquisition 1 Fictitious transaction rationale and synergies 2 Value transfer to RICE shareholders exceeds benefits to EQT shareholders 3 EQT’s poor M&A track-record & large deal size elevates execution risk 4 EQT’s misaligned incentives and efforts to force RICE vot
Slide 6: Transaction Fails To Deliver Stated Rationale & Synergies
Transaction Fails To Deliver Stated Rationale & Synergies ► RICE acquisition is primarily based on one promise: significant contiguous acreage yielding substantial drilling cost synergies ► We recreated EQT’s acreage maps with the assistance of our industry partners, a well regarded petroleum engine
Slide 7: EQT/RICE Does Not Have Claimed Contiguous Acreage
EQT/RICE Does Not Have Claimed Contiguous Acreage We believe EQT presented a highly misleading acreage map of Washington & Greene Counties to claim significant contiguous acreage. MANAGEMENT PRESENTATION (6/19/17) ACTUAL MAP EQT Acreage RICE Acreage Without contiguous acreage EQT cannot drill longer
Slide 8: EQT/RICE Cannot Easily Obtain Contiguous Acreage
EQT/RICE Cannot Easily Obtain Contiguous Acreage Delivering EQT’s claimed benefits from acquiring RICE would require obtaining substantial acreage via acquisitions (requiring significant additional capital) and leases. WASHINGTON / GREENE ACREAGE OWNERSHIP EQT Acreage RICE Acreage ► Significant acre
Slide 9: Existing Drilled Wells Limit Drilling Synergy Potential
Existing Drilled Wells Limit Drilling Synergy Potential Even if EQT were somehow able EXISTING EQT/RICE WELLS to obtain the abutting acreage, EQT Acreage RICE Acreage achieving its synergy target from Drilled EQT/RICE Marcellus Acreage longer laterals would still prove extremely challenging: 1) Both
Slide 10: Drilling Synergies Are Evolving & Impossible To Reconcile
Drilling Synergies Are Evolving & Impossible To Reconcile EQT’s synergy math is inconsistent & difficult to reconcile in our view. Undiscounted Drilling Synergies Undiscounted Drilling Synergies (Prior Disclosure): $1.3bn (Merger Proxy): $2.5bn EQT’s Marcellus well cost estimate Proxy shows undi
Slide 11: Sell Side Opinions Are Premised On Erroneous Synergies
Sell Side Opinions Are Premised On Erroneous Synergies Sell side opinions on the transaction are premised on EQT’s erroneous continuous acreage claims without independent validation. Therefore, we believe such opinions are not a useful barometer. “[W]e are fans of this strategic consolidation give
Slide 12: The Case To Reject Proposed RICE Acquisition
The Case To Reject Proposed RICE Acquisition 1 Fictitious transaction rationale and synergies 2 Value transfer to RICE shareholders exceeds benefits to EQT shareholders 3 EQT’s poor M&A track-record & large deal size elevates execution risk 4 EQT’s misaligned incentives and efforts to force RICE vot
Slide 13: EQT Is Giving RICE More Value Than It Is Receiving
EQT Is Giving RICE More Value Than It Is Receiving EQT is paying RICE shareholders more than it is receiving, while also issuing ~50% of significantly undervalued equity. Premium EQT is Paying to RICE Synergy Value EQT is Getting from RICE $0.2-$1.4 billion Shortfall $2.0 billion $1.8 billion $1.6 b
Slide 14: EQT Is Issuing Significantly Undervalued Equity
EQT Is Issuing Significantly Undervalued Equity EQT is issuing equity at an implied E&P EBITDA multiple of 2.4x – 4.1x, well below average peer E&P multiple of 6.4x. EQT’s Implied E&P EV to Consensus 2018 EBITDA Peers E&P EV / 2018 EBITDA 6.4x 36% Discount 46% Discount 62% Discount 4.1x 3.4x 2.4x Ba
Slide 15: EQT Is More Valuable Without RICE
EQT Is More Valuable Without RICE We believe the RICE deal destroys value when synergies are properly valued. ► EQT’s own proxy sum-of-parts valuation shows miniscule upside from the RICE deal only after giving full credit to fictitious synergies EQT Advisor’s Sum-of-the-Parts Valuation 8% Downside
Slide 16: Proxy Discounted Cash Flow Value Appears Problematic
Proxy Discounted Cash Flow Value Appears Problematic We believe the discounted cash flow (DCF) used by EQT’s financial advisor to justify the transaction is not a reliable measure of value. ► Terminal value assumption appears indefensible and skews output Despite RICE only having ~3 years of remai
Slide 17: EQT Attempts To Sell Deal On Irrelevant Accretion Metric
EQT Attempts To Sell Deal On Irrelevant Accretion Metric ► EQT has also attempted to justify the RICE acquisition based on cash flow accretion in 2018 and 2019 ► Cash flow accretion is an irrelevant & misleading metric Accretion says nothing about value paid or benefits received & results any time
Slide 18: Shareholders Could Generate Higher Accretion On Own
Shareholders Could Generate Higher Accretion On Own EQT shareholders would have created greater cash flow accretion (and with no execution risk) simply buying RICE shares in the open market than what would be achieved by EQT’s acquisition of RICE. ► EQT’s 2019 cash flow accretion of 33% compares unf
Slide 19: EQT's Other "Value" Arguments Fall Short
EQT’s Other “Value” Arguments Fall Short ► EQT’s argument in its proxy that RICE has traded at a discounted value to EQT and other comps and that RICE would re-rate within EQT does not stand up to scrutiny in our view RICE’s core Marcellus inventory life is less than half of its peers, implying th
Slide 20: RICE Dilutes Midstream Exposure & Increases Net Debt
RICE Dilutes Midstream Exposure & Increases Net Debt A RICE acquisition would reduce EQT per share exposure to midstream while increasing net debt per share. ► Transaction reduces exposure to attractive midstream business by 10% & results in a lower quality mix (e.g., RICE’s water handling) Diluti
Slide 21: The Case To Reject Proposed RICE Acquisition
The Case To Reject Proposed RICE Acquisition 1 Fictitious transaction rationale and synergies 2 Value transfer to RICE shareholders exceeds benefits to EQT shareholders 3 EQT’s poor M&A track-record & large deal size elevates execution risk 4 EQT’s misaligned incentives and efforts to force RICE vot
Slide 22: EQT's Poor M&A Track-Record & Deal Size Heighten Risk
EQT’s Poor M&A Track-Record & Deal Size Heighten Risk EQT’s poor M&A track-record and a transaction 5x larger than any prior deal – with suspect synergy claims and required follow-on M&A – significantly elevate execution risk for shareholders. ► We believe EQT has a troubling track-record of increas
Slide 23: Poor M&A Record / Inability To Assess Value Elevates Risk
Poor M&A Record / Inability To Assess Value Elevates Risk Potential inaccurate assessment of RICE value and synergies amplifies execution risk. ► EQT’s actions in core Marcellus region raise questions about ability to properly assess the value and potential of their targets ► Since 2016 EQT passed o
Slide 24: The Case To Reject Proposed RICE Acquisition
The Case To Reject Proposed RICE Acquisition 1 Fictitious transaction rationale and synergies 2 Value transfer to RICE shareholders exceeds benefits to EQT shareholders 3 EQT’s poor M&A track-record & large deal size elevates execution risk 4 EQT’s misaligned incentives and efforts to force RICE vot
Slide 25: Market Reaction To RICE Deal Was Decidedly Negative
Market Reaction To RICE Deal Was Decidedly Negative ► EQT’s negative stock price reaction immediately following the RICE announcement was among the worst declines of any acquirer YTD Relative Performance 1-Day Reaction Relative Performance 3-Day Reaction Average relative performance: (0.5%) Average
Slide 26: EQT's Stock Price Recovery Was Unrelated To RICE
EQT’s Stock Price Recovery Was Unrelated To RICE ► EQT’s stock bounced for reasons unrelated to RICE announcement 6/23/17: First ever open market buys by CEO & CFO disclosed 6/23/17: Received approval for critical pipeline; as RBC noted: “Final EIS for MVP a Positive Step… clearing this hurdle s
Slide 27: Decision To Prioritize RICE Acquisition Is Highly Suspect
Decision To Prioritize RICE Acquisition Is Highly Suspect EQT is determined to push a RICE vote through before addressing its sum-of-parts discount, which we and many other shareholders find highly suspect. Flawed Incentives: EQT’s perverse short & long-term 1 compensation structure had management e
Slide 28: Decision To Prioritize RICE Acquisition Is Highly Suspect
Decision To Prioritize RICE Acquisition Is Highly Suspect 3 Flawed Arguments: After original $2.5bn of synergies were challenged, EQT “found” $7.5bn new ones, resulting in total synergies exceeding entire deal value by ~$2.5bn EQT added $6.1bn or 81% of new synergies from categories that EQT tacit
Slide 29: Decision To Prioritize RICE Acquisition Is Highly Suspect
Decision To Prioritize RICE Acquisition Is Highly Suspect 3 EQT was not willing to stand behind the purported $7.5bn of new synergies when questioned by analysts, in our opinion “The numbers that are shown on that page are all the numbers at the high-end of the ranges…. I don't want anyone to ta
Slide 30: Decision To Prioritize RICE Acquisition Is Highly Suspect
Decision To Prioritize RICE Acquisition Is Highly Suspect 5 Flawed Logic: EQT continues to tease resolving the sum-of-parts to sell the RICE transaction, yet refuses to complete the picture EQT’s cover letter to its proxy dated October 12, 2017 asserts: “We believe this transaction enhances our ab
Slide 31: EQT Is Well Positioned Without RICE
EQT Is Well Positioned Without RICE There are no adverse effects to existing operations if the RICE deal is voted down, and EQT has promising avenues to create value. ► EQT is not dependent on acquiring RICE EQT has not changed its business or operations such that a “No” vote on the RICE deal woul
Slide 32: Appendix: Atlas Energy Case Study
Appendix: Atlas Energy Case Study 31
Slide 33: Atlas Energy History
Atlas Energy History At Atlas Energy Inc., Jonathan Cohen, as Vice ATLAS AMERICA / ATLAS ENERGY INC. (NASDAQ: ATLS) Chairman, and Daniel Herz, as Senior Vice President of Corporate Development and Strategy (collectively “Atlas $50.00 930% Management”) built and sold a premier Marcellus Return ente