Activists take control of EQT board in proxy fight

Image: EQT Energy

Activist investors have won control of the board at EQT Corp., the largest U.S. natural gas producer, according to preliminary results announced Wednesday at the company’s shareholder meeting.

Brothers Toby and Derek Rice, who sold their company to EQT about two years ago and together own 3% of the shares, have won seven seats on the 12-member board, based on preliminary tallies, the company said. The new board will meet later Wednesday and is expected to name Toby Rice as chief executive officer. All twelve elected directors won more than 80% of the votes cast.

The results, once certified, will put an end to a nine-month battle at the gas producer. EQT had resisted the brothers’ efforts to gain control, saying 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 discussion with Toby Rice and told him “he would win in a landslide.”

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 Inc. 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 Rices 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 Inc., while another advisory firm, Glass Lewis & Co., threw its support behind management.

© 2019 Bloomberg L.P.