DE Shaw’s Letter and Pres to EQT: A Plan to Unlock Shareholder Value

Smart Money
  • D.E. Shaw owns an approximate 4% interest in the common stock and equivalents of EQT
  • Believe that EQT is substantially undervalued and EQT’s board can remedy this undervaluation by announcing a plan that, pro forma for the acquisition of Rice Energy, can unlock $8Bn of value for shareholders (representing a 50% increase to EQT’s stock price) and that can be completed during the first half of 2018
  • Investors are frustrated with EQT and its current strategy. These frustrations are justified in light of 1) EQT’s poor equity performance, particularly given its low leverage and mix of premier midstream and production assets, 2) EQT’s outlay of $1.85Bn to acquire additional acreage, despite the Company’s own share price consistently reflecting negative value for undeveloped acreage, and 3) the uncertain benefits the Company stands to achieve through the acquisition of Rice given the lack of a clear plan to unlock value following the transaction
  • Despite asking shareholders to approve a substantial acquisition that would result in 35% dilution, EQT has said that it will take 18 months to develop a path toward addressing its persistent sum-of-the-parts discount and likely another twelve months to carryout whatever that path may be
  • EQT management has described the potential for an additional $7.5Bn in synergies without providing a commitment to achieve any portion of them – the kind of communication that puts valuable credibility at risk

EQT’s Board and Management Can Do More for Shareholders

  • Carry out a separation of Production and Midstream Businesses
    • We believe that separation is the best path forward and will leave both entities stronger and better able to pursue their respective strategic goals
    • Any tax drag from such a separation following immediately after the Rice acquisition would be immaterial (approximately $1 per share) compared to the opportunity to unlock value of approximately $30 per share or more
  • Restructure Midstream businesses through a merger of EQM and RMP
    • Combination would allow the businesses to achieve considerable operational and capital synergies while substantially increasing the IDR collected by EQGP, thereby benefitting all parties
  • Appoint experienced Midstream executives to the Board of EQT
    • Although Midstream represents ~40% of EQT’s equity value and $8Bn in potential value to be unlocked, EQT’s board lacks any independent directors with executive midstream experience or public company restructuring experience

Letter to EQT Board, September 14, 2017
Presentation to EQT, September 2017

Image Source: DE Shaw – EQT Presentation