The shareholder seeking to shake up EQT Corp. has filed a lawsuit accusing the gas driller of trying to create an uneven playing field in the company’s ongoing boardroom battle.
Investor Toby Rice alleges EQT is taking the unusual step of requiring nominees for the board to consent to being named in the company’s proxy materials, according to a copy of the complaint in Pennsylvania state court reviewed by Bloomberg News. The copy includes a stamp indicating it was filed in court.
The steps that Rice details aren’t required by the company’s bylaws, may violate state law, and are being done to give the company an advantage in its proxy fight with Rice and his team, according to the complaint.
In an interview, EQT Chief Executive Officer Robert McNally said that’s not the case and that the materials the company asks the nominees to sign are the same it would seek of any nominee.
“This really kind of strikes as much ado about nothing,” McNally said by telephone Thursday. “It seems like they’re really just trying to distract the market from what was a really good quarter for EQT and just change the narrative.”
Rice argues that including dissidents candidates on the company proxy card would create “the deceptive appearance” that its nominees support the incumbents.
“These circumstances make it far more likely that a shareholder will vote on the company’s proxy card, unfairly tipping the scale in the company’s favor,” according to the complaint.
EQT shares fell 2.2 percent in trading Thursday to $20.29 share as of 1:09 p.m. in New York, giving the company a market value of about $5.2 billion. McNally attributed the drop to a sector-wide reaction to higher-than-expected natural gas storage levels.
Earlier in the day, EQT released first-quarter results and said it would scale back drilling and boost well completions. McNally said the company is having “real success” in improving operating efficiencies despite the fact that the management team is relatively new.
The Rice brothers argue that “even if EQT achieves its guidance for 2019, which it failed to do in 2018, it would still be the highest cost operator in the” Marcellus shale basin. “Nothing has changed the urgent need to replace leadership and institute the Rice Plan,” they said in an emailed statement.
EQT’s stock is down 19 percent in the past year through Wednesday.
EQT has come under pressure from the Rice team, which collectively owns about 3.1 percent of the company and seeks to make Toby Rice its chief executive officer. The group has nominated nine directors to replace the majority of the company’s board.
The group, which includes Toby Rice’s brother Derek, argues that EQT has underperformed since it acquired their old company, Rice Energy Inc., in 2017. The brothers have the backing of two other activists, D.E. Shaw and Elliott Management Corp.
Rice contends in his lawsuit that EQT should either agree to the standard procedure of having investors vote on either the company’s slate or that of the activists. Failing that, he argues EQT should agree to use a so-called universal proxy card, which allows investors to vote for candidates from either slate.
“We believe both sides agreeing to use a universal proxy card would reflect best-in-class corporate governance, as the most qualified directors would be elected regardless of which proxy card a shareholder voted on,” Toby Rice said in a statement. “We also believe it is unconscionable for the EQT board to attempt to coerce shareholder votes by allowing a loss of the election to potentially trigger substantial penalties under EQT’s credit agreement.”
The investor is asking a judge to invalidate any requirement for his group’s nominees to consent to being named on the company’s proxy card and bar EQT from doing so. They also seek an order forcing the company to approve its nominees so that a credit agreement provision won’t be triggered, according to the complaint. The lawsuit couldn’t be immediately confirmed with the court in Pennsylvania State Court in Allegheny County.
If the company fails to approve the Rice team’s nominees, Rice argues in the suit that the company runs the risk of defaulting on at least $800 million of its debt in the case a majority of the board is replaced at the annual general meeting July 10.
The case is Rice v. EQT Corp., Court of Common Pleas, Allegheny County, Pennsylvania.