A Pennsylvania federal judge on Wednesday declined to throw out a proposed class action over EQT Corp.'s merger with Rice Energy, ruling that investors adequately alleged that EQT's executives made statements about the benefits of the merger that "were simply not true at the time they were made."
The natural gas producer's investors claim that EQT misled them about anticipated operating efficiencies and cost reductions that ultimately failed to materialize after its $6.7 billion merger in 2017. In particular, the shareholders alleged that EQT said it would be able to achieve savings by drastically increasing its drilling locations despite the fact that the company knew there wasn't actually enough undrilled space to do so.
EQT asked the court to nix the suit in January, arguing that investors behind the suit are attempting to "convert their disappointment" with the company's post-merger performance into securities fraud. The company said that it was indeed possible for it to drill as many new wells as it had promised, thus its statements weren't misleading.
But U.S. District Judge Robert J. Colville held Wednesday that the amount of acreage possessed by EQT and Rice and the amount of available, undrilled acreage that could be used were "knowable, quantifiable facts at the time defendants and their representations."
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Shareholders lodged their securities suit in June 2019, alleging that EQT promised in investor calls, press releases and regulatory filings that the merger would bring $2.5 billion in synergies and save the company $100 million in 2018 alone. The company had said that combining oil and gas leases with Rice Energy would create large, contiguous areas for drilling longer horizontal gas wells in the Marcellus Shale, according to the suit.
But investors say the leases weren't as close together as promised, and the company's costs actually went way up after the merger, causing a $300 million increase in the cost of drilling in the third quarter of 2018 and a 13% stock drop that "eras[ed] nearly $700 million in shareholder value in a single day."
Notably, the October 2018 earnings report at issue in the suit also led to a proxy fight between EQT and Rice Energy's founders, who challenged the company's post-merger strategy. The Rice founders ultimately won the battle last July, when shareholders overwhelmingly voted to give control of the company to brothers Toby and Derek Rice.
In September 2019, a Pennsylvania magistrate judge tapped Bernstein Litowitz Berger & Grossmann LLP and Cohen Milstein Sellers & Toll PLLC to lead the EQT action. The lead plaintiffs filed an amended complaint that December.
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As recently as March, the investors were represented by M. Janet Burkardt and Jocelyn P. Kramer of Weiss Burkardt Kramer LLC, Salvatore J. Graziano, Adam H. Wierzbowski, Jai K. Chandrasekhar and Brenna Nelinson of Bernstein Litowitz Berger & Grossmann LLP and Steven J. Toll, S. Douglas Bunch, Susan G. Taylor, Megan K. Kistler, Christina D. Saler and Jessica Kim of Cohen Milstein Sellers & Toll PLLC.
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