EQT Corp. and Equitrans Midstream Corp. announced Monday that they agreed to merge, creating a top vertically integrated Appalachian Basin natural gas business with an initial enterprise value of more than $35 billion.
Under the terms of the agreement, EQT will acquire Equitrans in an all-stock transaction worth about $5.5 billion. Each outstanding share of Equitrans common shares will be exchanged for 0.3504 of a share of EQT common stock, representing a value of $12.50 per share, a 12 percent premium over last week’s close.
The transaction is expected to close during the fourth quarter if it clears regulators and shareholders of EQT and Equitrans, both of which are based in Pennsylvania. Based in Canonsburg, Equitrans was an EQT asset before it was spun off in 2018.
Closing is also contingent on the Federal Energy Regulatory Commission authorizing the Mountain Valley Pipeline to begin service.
TPG analyst Jake Roberts said the move was relatively unexpected given the recent spin of the asset, although he notes that the transaction was accomplished under the previous management team.
Pittsburgh-based EQT tapped Guggenheim Securities as lead financial advisor with RBC Capital Markets also pitching in. Kirkland & Ellis offered outside legal counsel.
Barclays and Citi were financial advisors to Equitrans while Latham & Watkins served as legal counsel with a team led by Houston partners Ryan Maierson and Nick Dhesi with Houston associates Clayton Heery, Ziyad Barghouthy, Haley Sandoval, Catherine Sims, Christina Schrantz and Armaan Bhimani.
Advice was provided on antitrust matters by Washington, D.C., partners Jason Cruise and Peter Todaro, with associates Matthew Piehl, Karen Kim, and Kristen Previto; on benefits and compensation matters by Washington, D.C., partners Adam Kestenbaum and Matthew Conway, with associate Courtney Thomson; and on regulatory matters by Washington, D.C., partner Patrick Nevins.
Counsel on environmental matters was offered by Los Angeles/Houston partner Joshua Marnitz, with associate Jacqueline Zhang; on tax matters by Houston partners Tim Fenn and Bryant Lee, with Houston associates Christine Mainguy and Dylan White; on finance matters by Houston partner Matthew Jones, with Houston associates Max Fin, Michael Basist and Chris Fanick; and on intellectual property and data privacy matters by Bay Area partner Michelle Gross, with associates Kiara Vaughn and Caroline Omotayo.
The Kirkland team was led by corporate partners David Feirstein, Cy Jones (Houston), Jennifer Gasser (Houston) and Steven Choi; capital markets partners Matt Pacey (Houston) and Lanchi Huynh (Dallas); Houston executive compensation partners Stephen Jacobson and Jared Whalen; debt finance partners Rachael Lichman (Houston) and Chad Davis (Dallas); Houston real assets partner Chad Smith; and tax partners Dean Shulman, Sara Zablotney and Joe Tobias (Dallas).
Partner Hillary Holmes and of counsel Justine Robinson of Gibson, Dunn & Crutcher advised Guggenheim Securities.
EQT’s shareholders are expected to own 74 percent of the combined company and Equitrans’ shareholders the balance. Three representatives from Equitrans will join EQT’s board and EQT’s executive management team will lead the combined company, with its headquarters remaining in Pittsburgh.
EQT said that the combination is well-positioned to be a competitive U.S. energy leader with a peer-leading cost of supply, durable free cash flow in all price environments and significant synergy potential.
The merged company’s assets will include more than 2,000 miles of pipeline infrastructure, which overlap with EQT’s core upstream operations and midstream assets. EQT added that cost structure integration materially improves the economics of its remaining 4,000 drilling locations.
The buyer expects annual synergies of $250 million with a potential upside of more than $425 million, noting that integration of contractual volume commitments eliminates $11 billion of future liabilities, well in excess of assumed debt.
EQT has also identified a path to more than $5 billion of near-term debt repayment via $3.5 billion of asset sales and organic free cash flow, with a long-term debt target of $7.5 billion.
EQT president and CEO Toby Rice said in the release that Equitrans is the most strategic and transformational transaction EQT has ever pursued and management sees this as a “once-in-a-lifetime” opportunity to vertically integrate one of the highest-quality natural gas resource bases anywhere in the world.
“As we enter the global era of natural gas, it is imperative for U.S. natural gas companies to evolve their business models to compete on the global stage against vertically integrated rivals,” he said. “We have identified multiple, high confidence near-term synergies with significant upside from future infrastructure optimization projects that we believe will drive material value creation for shareholders over time.”
Thomas Karam, executive chairman of Equitrans, said the transaction with EQT is the culmination of a process conducted by its board and is the best strategic path forward for its shareholders, employees and stakeholders.
“Combining with EQT creates a premier vertically integrated natural gas business that is a game changer for the natural gas industry and Appalachian Basin,” he said. “The transaction delivers full and fair value to ETRN [Equitrans] shareholders and provides the opportunity to participate in future value growth as EQT executes on its strategy.”