On Monday, Toby and Derek Rice filed a proxy statement with the Securities and Exchange Commission and sent EQT shareholders a package and special proxy card (for voting) in an effort to elicit votes for their slate of nine board members at the upcoming July annual meeting–so they can take control of the company. Normally proxy statements are pretty dry affairs. Not this one! There are bombshell accusations in the proxy statement made by the Rice boys against EQT’s current management.
In the proxy statement (full copy below), the Rice boys outline, chapter and verse, their version of how the current situation developed. A few select highlights:
On October 31, 2018, a number of EQT’s largest shareholders approached members of the Rice Team voicing their dissatisfaction with EQT’s performance and asking the Rice Team to reach out to the board to offer assistance and help turnaround EQT.
On November 11, 2018, Toby Rice and other members of the Rice Team were again approached by a number of EQT shareholders. The shareholders again asked the Rice Team to reach out to the board to offer taking “a more active role” in addressing EQT’s performance.
Toby met with EQT Board Chairman Jim Rohr on November 15, 2018 in Pittsburgh. Toby told Rohr he’d willing to “work alongside” and help out new CEO Bob McNally. Rohr said he thought the issues identified by Toby were short-term problems and would quickly improve, but he gave lip service to Toby’s suggestion, saying he’d have a talk with McNally about getting help from Toby.
On November 27, 2018, Toby met with Bob McNally and offered his assistance. Bob told Toby he’d run it by the board and get back to him later. Bob never got back.
In early December, when it became clear that McNally and Rohr were not serious about accepting help from the Rice boys, the Rice boys decided to up the ante and publicly announced a plan to improve EQT’s financial performance. The plan included dumping both McNally and Rohr. You can imagine that went over like a lead balloon with EQT’s senior management and board.
In January there was some back and forth bickering. Toby and Derek asked for certain documents and a list of EQT shareholders, and EQT stonewalled them for nearly a month. Rice says EQT “attempted to manipulate corporate machinery” by denying them the information in a timely fashion.
There’s more to the back and forth and the entire story, which you can read in the full document below.
The Rice boys have circulated a plan that includes giving the boot to the entire current board (except for brother Dan Rice) and all of EQT’s current senior management (see Proxy War: Rice Boys Nominate New EQT Board, Keep Brother Dan).
The gloves are now fully off. The proxy statement issued Monday includes some pretty caustic statements, like these:
- We Believe EQT Needs Significant and Urgent Change in Leadership
- We Are Deeply Concerned with EQT’s Severely Depressed Stock Price
- We Are Deeply Concerned with the Company’s Operational Performance and Do Not Believe EQT’s Plan Will Capture the Company’s Full Value
- We Believe the “New” EQT Is the Old EQT and the Board and Senior Management Must be Reconstituted to Avoid Further Value Destruction
The Pittsburgh Business Times culled through the proxy statement and had these observations:
The Rice group took the next step late Monday with the filing of a preliminary proxy statement to try to get enough EQT shareholders to vote for its slate of directors at the natural gas company’s annual meeting July 10. And while there are still significant questions unable to be addressed in the Rice proxy — including how many directors EQT will put up and when the proxies are due — here are a few things that we learned from the filing:
The effort started earlier than December
The effort went public in December with a letter to the board by Toby Z. Rice and Derek Rice, former top executives of Rice Energy. But the Rice proxy fixed the date more than a month before, after two separate approaches by “a number of EQT largest shareholders” who were unhappy with EQT’s performance and wanted the Rices to ask the board if they needed help to turnaround the driller.
Toby Z. Rice, the former president of Rice Energy, met Nov. 14 with EQT Chairman Jim Rohr in Pittsburgh to discuss shareholders’ concerns. The proxy said some of the shareholders’ names weren’t made public.
“Toby Z. Rice offered his assistance in turning around EQT’s performance by leading its operational arm. Toby Z. Rice told Mr. Rohr that he felt he could work alongside (EQT CEO) Mr. (Rob) McNally. Mr. Rohr stated that he believed that the issues were isolated to a single quarter.”
But Rohr also connected Toby Rice and McNally, who meet in Pittsburgh Nov. 27. McNally told Rice that he would bring up his offer during board meetings Dec. 4 and 5 and then get back to him, according to the proxy.
Dec. 7, EQT announced it would hold a conference call to discuss its 2019 plans. According to the proxy:
“At such time, Mr. McNally had not yet contacted Toby Z. Rice, which the Rice Team believed to be a clear signal that EQT did not intend to seriously engage.”
That sparked the Rices’ letter to the EQT board on Dec. 10.
Rices urged replacement of CEO in December
McNally met with Toby Z. Rice on Dec. 14 and, two days later, Rohr and McNally invited him to speak to the board about his proposals to turnaround EQT. Three days later, the Rices sent a private letter to the board that included finding a “new mutually agreed upon chairman of the board,” making Rice CEO and then adding Rice to the board and replacing three existing directors.
EQT, Rices battled on proxy materials
The Rices’ proxy statement also details at length the back and forth between the Rices’ legal counsel, Olshan Frome Wolosky LLP, and EQT and its outside legal counsel, Wachtell, Lipton, Rosen & Katz, over director nominations and other questions surrounding the proxy. It describes more than 20 encounters, mostly letters, between the two that the Rice team said was an attempt to “manipulate corporate machinery” ahead of the July 10 annual meeting.
It’s one slate or the other
The proxy statement also provides minute detail on how shareholders should support the Rice plan, including using a white proxy card. That means that anyone using the white proxy card will only be electing nine board members, not the full 12.
Biggest shareholders
It isn’t clear how many of the shareholders are with the Rices, as many haven’t said. A report in January from Tudor Pickering Holt & Co. reported wide support. However, the three top shareholders are:
- T. Rowe Price Associates Inc., 25.5 million shares, 10 percent of common stock.
- BlackRock Inc., 23.9 million shares, 9.4 percent of common stock
- The Vanguard Group, 23.7 million shares, 9.3 percent of common stock
Even if successful, the board could be split
EQT has 12 board members now, and although it hasn’t said yet, the Rice group is betting its going to stick with the same number. The Rice group is only nominating nine members, including two members of the Rice family. That would be enough for a majority on the board.
But the proxy also said that if there is less than a majority at the annual meeting, “there can be no assurance that any actions or proposed changes by our nominees, including implementation of our turnaround plan … will be adopted or supported by the board.”
There’s a 100-day plan
EQT has hit back on the Rice team’s proposals, saying they don’t reflect the realities on the ground today. In the proxy, the Rice team said it’s about to release a 100-day immediate action plan for EQT after it gains control of the company.
“While our plan is to transform EQT into the lowest cost natural gas operator in the country through focusing on lowering EQT’s well costs, our ultimate goal is to generate best-in-class economics,” the Rice team said.
EQT and the Rice team did not respond to requests for comment.*
*Pittsburgh (PA) Business Times (Apr 23, 2019) – Seven things we learned from the Rices’ proxy filing in its fight for control of EQT
A copy of the full proxy statement issued Monday:
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