Editor's note: This article has been updated with comments from EQT President and CEO Toby Rice.
E&P EQT Corp. and Equitrans Midstream Corp. have entered into a definitive merger agreement reuniting the two companies in an all-stock deal worth roughly $5.45 billion, according to a March 11 press release.
The companies said the deal creates the U.S.’ only large-scale, vertically integrated natural gas company prepared to “compete on the global stage,” according to EQT — an echo of the rationale Chesapeake Energy cited in its $7.4 billion merger announcement in January with Southwestern Energy.
Under the terms of the merger agreement, each outstanding share of Equitrans common stock will be exchanged for 0.3504 shares of EQT common stock, representing an implied value of $12.50 per Equitrans share based on the volume weighted average price of EQT common stock for the 30 days ending on March 8. The transaction suggests a 12% premium over Equitrans’ March 8 closing price of $11.16.
After the deal, EQT shareholders would own 74% of the combined company and Equitrans shareholders the remaining 26%.
EQT said that when complete, the combined company’s enterprise value would exceed $35 billion and add more than 2,000 miles of critical pipeline infrastructure with “extensive overlap with EQT's core upstream operations and existing midstream assets.”
On a March 11 call to discuss the transaction, EQT President and CEO Toby Z. Rice said its upstream acquisition activity has had a common theme.
“Each acquisition we’ve done included midstream ownership which was by design as we recognized early on the strategic value associated with owning integrated midstream infrastructure,” he said. “Pro forma for Equitrans, approximately 90% of our operated production will flow through EQT owned midstream assets creating unrivaled margin enhancement relative to the rest of the industry. This vertical integration positions EQT as the lowest cost natural gas producer in the United States with a pro forma long term cash flow breakeven price of less than $2 per MMbtu.”
The combined company would also boast 27.6 Tcfe of proved reserves across about 1.9 million net acres with 6.3 Bcfe/d of net production and more than 8 Bcfe/d of gathering throughput across 3,000 miles of pipeline. EQT is the largest U.S. natural gas producers.
The companies said the merger also creates $250 million in annual synergies, including lower financial and corporate costs; uptime and production optimization; and reduced capital and operating costs. The companies have identified an “upside pathway” to another $175 million in additional yearly synergies, the press release said.
The deal would reunite the two companies after they separated in 2018. Rice said Equitrans is the most strategic and transformational transaction EQT has ever pursued. “We see 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,” Rice 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.”
The transaction is expected to close during fourth-quarter 2024. The transaction’s closing is contingent on Federal Energy Regulatory Commission authorizing the Mountain Valley Pipeline to commence service.
The deal also requires regulatory approvals and clearances, approval of the transaction by shareholders of both EQT and Equitrans and other customary closing conditions.
Guggenheim Securities LLC acted as lead financial adviser and RBC Capital Markets LLC acted as a financial adviser to EQT.
Kirkland & Ellis LLP is serving as EQT's legal counsel on the transaction. Barclays and Citi served as financial advisers to Equitrans, and Latham & Watkins LLP is serving as legal counsel to Equitrans.