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Activists Take Control of EQT Board in Proxy Fight


By Scott Deveau and Naureen S. Malik

Activist investors have won control of the board at EQT Corp., bringing to an end a nine-month battle for the largest U.S. natural gas producer.
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 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 shareholders provided overwhelming support to us,” Toby Rice, 37, said after the meeting. “One of the key focuses of our campaign was changing out leadership, and that starts with the CEO. So that will be one of the first items on the agenda.”

EQT rose 4.2% to $16.32 a share at 9:59 a.m. in New York after earlier climbing as much as 5%. Bloomberg News first reported the preliminary results on Tuesday.

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 discussions 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.

The Rices don’t plan to replace all of EQT’s top executives, but will replace the general counsel and add a chief information officer and chief human resources officer, Toby Rice said after the shareholder meeting. He said the company will remain focused on Appalachia’s Marcellus Shale, the biggest U.S. gas basin.

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.

“While this was not the outcome we had hoped for, I’m confident that the steps we have taken and the progress achieved in the past seven months has put EQT in a position of strength,” McNally said in a statement at the shareholder meeting.

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.



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