EQT Corp. dug in this week, rejecting nine board nominees put forward by Rice Energy co-founders Toby Rice and Derek Rice, calling the brothers’ campaign nothing more than an attempt to promote the family’s interests.
Weeks after the brothers put forward their nominees for the July 10 shareholder meeting, EQT’s board said late Wednesday three directors would be stepping down so that three of the company’s nominees could be considered. The board said its candidates are more experienced than those put forth by the Rice brothers. If approved by shareholders, the company noted that nine of the 12 directors will have been elected since 2017.
EQT acquired Rice Energy for $8 billion in 2017 to become the Lower 48’s largest natural gas producer. Current CEO Robert McNally took over last November and has been battling the brothers ever. The Rices contend they can create more value for the company after a rocky stretch of results in the months after the acquisition. Results have improved, however, with EQT turning in a solid performance in 4Q2018 and 1Q2019 as it looks to execute a new vision for the remade company.
The brothers’ plan to install their candidates, oust McNally and fill 15 of EQT’s top management positions with Rice Energy veterans would severely “destabilize” the company, the board said in a letter to the brothers on Wednesday. Directors expressed confidence in the company’s recent results and McNally’s direction.
The board also shared “serious reservations” about the brothers' operation of Rice Investment Group (RIG), which invests in the oil and gas industry, indicating their roles could create conflicts of interest.
“The fact that you personally reached out to company executives to try to persuade them to do business with RIG portfolio companies has informed the board’s view on this issue,” the letter said. “Additionally, a number of your other nominees have a long history of friendship and service to the Rice family, and more than one have relatives who were employed by Rice Energy or its related companies and investors.”
Directors said the board should not be “a friends and family club,” and it’s “not in the best interests of all EQT shareholders for the company to become a family business.” The letter also called into question Toby’s experience, as he pushes to replace McNally as CEO. Directors noted that he was replaced as CEO when Rice went public in 2014, which “speaks volumes,” and “we are not aware of anything that would cause us to reach a different conclusion than your own family members.”
The letter was signed unanimously by EQT’s independent board members.*
The brothers, who own more than 3% of EQT shares, fired back on Thursday, again accusing EQT’s leadership of lacking the kind of “vision, ambition and execution” to deliver on the expansive asset base. They also said the board’s accusation of a self-interested campaign to take over is disingenuous.
“The board knows that the Rice team began this campaign only after several of EQT’s largest shareholders reached out to us, expressing their disappointment with the company’s performance,” the brothers wrote.
EQT’s board has nominated Janet L. Craig, James T. McManus and Valerie A. Mitchell. While long-time chairman James E. Rohr would step down, along with Bray Cary, Jr. and Lee T. Todd, Jr.
The Rice brothers also have dropped a lawsuit as EQT has elected to use a universal proxy card that lists both parties’ board nominees instead of separate cards that could confuse the voting process.
*The original version of this story incorrectly stated that EQT director Daniel J. Rice signed the board’s letter to the Rice brothers. Daniel J. Rice is not an independent director. NGI regrets the error.