Activist hedge fund Jana Partners LLC disclosed holding a 5.8% stake in Appalachian oil and gas producer EQT Corp. (NYSE:EQT) and wants the company to drop its planned $6.7 billion takeover of peer Rice Energy Inc. (NYSE:RICE).
EQT announced the acquisition of Rice Energy in June, in a deal that would make it the largest natural gas producer in the U.S. ahead of even ExxonMobil Corp. (NYSE:XOM) and Chesapeake Energy Corp. (NYSE:CHK), with production reaching 3.6 billion cubic feet per day following deal completion.
But Jana, which began acquiring shares of EQT in April, was blindsided by the deal, according to sources familiar with the matter. EQT’s shareholders also didn’t seem to be in favor of the transaction as the company’s stock fell nearly 9% when it was announced.
Instead of pursuing a takeover, Jana believes it would be better if EQT separated its exploration and production unit from its midstream business. Focusing solely on E&P would allow EQT to flourish.
The hedge fund also questions the benefits of the transaction and believes the price tag is too high, the sources added.
In addition, Jana called for a change in EQT’s board structure and has lined up potential nominees, namely HepCo Capital Management LLC CEO Jonathan Cohen, Atlas Energy Group LLC (OTC:ATLS) CEO Edward Cohen and Atlas Energy Group President Daniel Herz.
EQT, in response, acknowledged that its units could be worth more if the company was split, adding that its managers would assess options and devise a plan by the end of 2018.
“EQT seeks to maintain an open dialogue with investors and respects their opinions and perspectives,” a company spokeswoman noted.
Should Jana succeed in convincing EQT shareholders to vote against the deal, it could trigger a payment of $67 million to Rice Energy.
Rice Energy has yet to comment on Jana’s moves.
Barry Rosenstein’s Jana Partners has a history of pushing oil and gas producers to separate their upstream and midstream businesses.
In 2013, the hedge fund pressed QEP Resources Inc. (NYSE:QEP) to separate its segments into two firms, and QEP eventually accepted.
Jana applied the same pressure to Apache Corp. (NYSE:APA) a year later, pushing the firm to sell its interest in a Canadian liquefied natural gas project.
Jana has become the fourth-largest shareholder of EQT since amassing its interest.
Based on the company’s closing price on June 30, Jana’s position is valued at approximately $590 million.
EQT ended the day trading at $59.75 per share, up 1.98%. Rice Energy, meanwhile, slid 3.64% to close at $25.66 per share.