Cohen Milstein Takes Lead in EQT

Shareholder Advocate Fall 2019

October 16, 2019

By S. Douglas Bunch

On September 19, Cohen Milstein, representing the Northeast Carpenters Annuity Fund and the Northeast Carpenters Pension fund (“Northeast Carpenters”), was appointed co-lead counsel in a securities class action against EQT Corporation (“EQT” or “Company”). The case, In re EQT Corporation Securities Litigation, No. 2:19-cv-00754, is currently pending in the U.S. District Court for the Western District of Pennsylvania before U.S. Magistrate Judge Maureen P. Kelly.

In the case, Northeast Carpenters and its co-lead plaintiff the Government of Guam Retirement Fund (“Guam”) allege that EQT misrepresented the “substantial synergies” that were expected to arise from a planned merger with rival natural gas producer Rice Energy due to “the contiguous and complementary nature of Rice’s asset base with EQT’s.”

This case is somewhat unique in that, repeatedly throughout the proposed class period, activist investor JANA Partners LLC challenged the accuracy of EQT’s statements to investors about the purported benefits of the merger, calling the Company’s calculation of $2.5 billion in synergies “highly questionable.” In multiple letters to the Company, JANA argued that abutting acreage acquired in the Rice transaction would only marginally increase lateral well length—touted as the primary benefit of the merger—and even where parcels of newly acquired land were adjacent to land EQT already owned, many of those parcels had already been drilled out. Actual synergies, according to JANA, would be approximately $1.3 billion less than EQT was advertising.  JANA also noted that EQT executives were improperly incentivized to complete the merger, regardless of whether it was in the best interests of shareholders because of their compensation structure.

On October 25, 2018, EQT reported its financial results for the third quarter of 2018, revealing the truth: the merger had not only failed to achieve the represented benefits, it had created inefficiencies.  In particular, the Company had not been able to achieve the lateral well length it told investors was possible. EQT shares fell 13% on the news, dropping from a close of $40.46 per share on October 24, 2018 to $35.34 on October 25, 2018—a single-day erasure of nearly $700 million in shareholder value. Over the next several days, EQT shares fell to as low as $31.00 per share—less than half what the Company was worth when the acquisition closed in November 2017.

The precise contours of the case may shift as Cohen Milstein and its co-lead counsel vigorously seek new information to bolster and expand the amended complaint, which will likely be filed later this year. As of now, however, Northeast Carpenters and Guam are pursuing the action under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 on behalf of all investors who purchased EQT common stock between June 19, 2017 and October 24, 2018. The co-lead plaintiffs are also bringing claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 on behalf of all persons who purchased or otherwise acquired EQT common stock in exchange for their shares of Rice common stock as of September 25, 2017, the record date for shareholders to vote on the merger with Rice.