Pittsburgh-based EQT Corp. announced Feb. 21 that its board of directors has unanimously approved a plan to separate its upstream and midstream businesses, creating a standalone publicly traded corporation, called NewCo, which will focus on midstream operations. The separation is intended to qualify as tax-free to EQT shareholders for U.S. federal income tax purposes; and is expected to be completed by the end of the third quarter 2018. Under the separation plan, EQT shareholders will retain their shares of EQT stock and receive a pro-rata share of the new independent midstream company. Both companies will remain headquartered in Pittsburgh, PA.
“The decision to build our midstream business in parallel with upstream growth has created one of the strongest midstream companies in the Appalachian Basin,” said James Rohr, EQT’s lead independent director. “We have taken many steps to highlight the value of our midstream assets through a series of transactions including, the initial public offering of EQM, midstream asset dropdowns to EQM, and the initial public offering of EQGP. This transaction represents a new chapter for our business as we unlock the value created during the past 10 years.”
EQT president and CEO Steve Schlotterbeck added further insight on the plan to spin off its midstream business.
“When we announced the Rice Energy acquisition, we committed to addressing the sum-of-the-parts discount in our shares,” Schlotterbeck said. “The Rice transaction accelerated the maturation of both our businesses, provided scale that significantly enhanced the standalone prospects of both companies, and positioned us to further enhance value through separation. We are now the largest natural gas producer in the U.S. – with a strong and strategic midstream system in the best natural gas basin in the country. We will complete the separation with urgency, consistent with our commitment to shareholders.”
EQT believes that creating an independent midstream public company offers a number of benefits to the standalone businesses, including:
- Pure-play companies providing a clear investment thesis
- Visibility to attract a long-term investor base suited to each business
- Capital structures aligned with cash flow risk/reward profiles
- Dedicated management and boards focused on distinct strategic visions
- Simpler and easier to understand financial reporting
- More efficient allocation of capital
- Enhanced potential for customer base expansion and organic growth
- Investment grade ratings expected for both companies
- More attractive equity currency and access to capital
- Midstream plan of action prior to separation
EQT plans to pursue the following:
- A drop-down of the retained midstream assets in an accretive transaction to EQT Midstream Partners LP
- A merger of EQM and Rice Midstream Partners LP in an accretive transaction
- A sale of the RMP Incentive Distribution Rights (IDRs) to EQT GP Holdings LP
Under EQT’s plan, EQGP will retain the EQM IDRs, and EQGP and EQM will remain separate publicly traded entities after separation. EQT does not intend to modify its existing gathering and transmission contracts with EQM in connection with the separation. Additional details concerning the midstream transactions will be provided in the near future. Completion of the midstream related transactions will not be a condition to completion of the separation.
Upon completion of the separation, Steve Schlotterbeck will remain CEO of EQT and Jerry Ashcroft, senior vice president and president, midstream for EQT; and senior vice president and chief operating officer of EQM, will lead NewCo as chief executive officer.
The proposed spin-off is subject to customary conditions, including receipt of a favorable opinion of legal counsel and/or a private letter ruling from the Internal Revenue Service with respect to the tax treatment of the transaction for U.S. federal income tax purposes, the effectiveness of a Form 10 registration statement to be filed with the Securities and Exchange Commission (SEC) for the shares of NewCo, and final approval and declaration of the spin-off dividend by the EQT Board of Directors.Tags: EQT, NewCo