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Could Jana Partners Foil the EQT–Rice Energy Acquisition?

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Could Jana Partners Foil the EQT–Rice Energy Acquisition? PART 1 OF 14

Jana Partners Continues to Heap Scorn on EQT–RICE Acquisition

Jana Partners’ fresh dose of opposition

Escalating its activism campaign on EQT (EQT), hedge fund Jana Partners submitted a letter to EQT’s board earlier this month. In it, Jana Partners made it clear that it continues to oppose EQT’s intention to acquire Rice Energy (RICE).

In June, EQT announced that it plans to acquire Rice Energy (RICE) for approximately $6.7 billion. In July, activist hedge fund Jana Partners revealed a 5.8% stake in EQT and declared its intention to influence the company’s strategy.

Jana Partners Continues to Heap Scorn on EQT–RICE Acquisition

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Not only is the New York–based hedge fund aiming to prevent the deal from completing, but it also wants EQT to separate its natural gas midstream assets from its E&P (exploration and production) business.

In the letter to the board, Barry Rosenstein, managing partner of Jana Partners, noted, “EQT’s perverse compensation structure in fact incentivizes management to pursue this suboptimal, dilutive acquisition, no matter the cost to EQT shareholders.”

Based on Jana’s suggestion to break up its business, EQT acknowledged the sum-of-parts discount. That means that the separate parts could be worth more if the businesses were, in fact, separated. EQT noted that it would evaluate and address these options and accordingly have a plan by the end of 2018.

Brief background

EQT announced that Rice Energy shareholders would receive 0.37 EQT shares along with $5.30 in cash for each RICE share. According to EQT’s June presentation, as of June 16, 2017, that indicated an implied value of $27.04 per share of Rice Energy. On June 16, 2017, RICE stock was trading at $19.69, so the offer value represents a premium of 37.0% to RICE’s June 16 closing.

EQT also announced that it would assume or refinance ~$1.5 billion in net debt and preferred equity on RICE’s balance sheet. EQT expects the transaction to close in 4Q17.

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