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Why EQT Is Spinning Off Its Midstream Operations


Feb. 23 2018, Updated 10:38 a.m. ET

EQT’s spin-off plan

On February 21, 2018, EQT (EQT) announced its plan to separate its midstream operations into a stand-alone entity. That could result in EQT being a pure-play upstream company with the new entity focused on midstream operations. The company expects to close the tax-free separation by the end of 3Q18. Under the separation plan, EQT shareholders will retain their EQT shares and receive pro rata shares of the new midstream company.

Hedge Fund D.E. Shaw and activist hedge fund Jana Partners had been pushing for this separation ever since the EQT–Rice Energy deal last year.

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As the above chart shows, the transaction involves the acquisition of Rice Midstream Partners (RMP) by EQT Midstream Partners (EQM)—EQT’s midstream MLP—and the acquisition of RMP IDRs (incentive distribution rights) by EQT GP Holdings (EQGP). Both EQM and EQGP will remain separate publicly traded entities under the new midstream C corporation.

Transaction rationale

Steve Schlotterbeck, EQT’s president and chief executive officer, said, “When we announced the Rice Energy acquisition, we committed to addressing the sum-of-the-parts discount in our shares. The Rice transaction accelerated the maturation of both our businesses, provided scale that significantly enhanced the standalone prospects of both companies, and positioned us to further enhance value through separation.”

The key transaction benefits include the following:

  • a clear investment thesis as pure-play companies that can attract long-term investors
  • flexibility to have capital structures based on risk-return profiles of upstream and midstream businesses separately
  • enhanced growth potential with focused visions

Let’s take a look next at how the companies’ operations could be impacted prior to and after the separation.


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