Rice Energy Inc (NYSE:RICE) and EQT Corporation (NYSE:EQT) announce that they have entered into a definitive merger agreement under which EQT will acquire all of the outstanding shares of Rice common stock for total consideration of approximately $6.7 billion – consisting of 0.37 shares of EQT common stock and $5.30 in cash per share of Rice common stock. EQT will also assume or refinance approximately $1.5 billion of net debt and preferred equity. The transaction is expected to close in the fourth quarter of 2017, subject to customary closing conditions.
Rice Energy shares reacted to the news, rising nearly 27% to $25.01 in Monday’s trading session.
“This transaction brings together two of the top Marcellus and Utica producers to form a natural gas operating position that will be unmatched in the industry. Rice has built an outstanding company with an acreage footprint that is largely contiguous to our existing acreage, which will provide substantial synergies and make this transaction significantly accretive in the first year, said Steve Schlotterbeck, EQT’s president and chief executive officer.
“Since the beginning of 2016, we have added more than 485,000 acres to our development portfolio and have achieved significant scale in the core of the Marcellus. We will now shift our focus from acquisitions to integration as we work to drive higher capital efficiency through longer laterals; reduce per unit operating costs through operational and G&A synergies; improve our sales portfolio by expanding access to premium markets; and deliver increased value to our shareholders,” continued Schlotterbeck.
Daniel J. Rice IV, chief executive officer, Rice Energy, stated, “Natural gas is the key to a cleaner energy world; and the combination of Rice and EQT – two of the United States’ largest, lowest-cost, and most responsible natural gas producers – creates an unparalleled leader in shale gas development that will benefit the environment and our shareholders for many decades to come.”
As the vast majority of the acquired acreage is contiguous with EQT’s existing acreage position, EQT anticipates a 50% increase in average lateral lengths for future wells located in Greene and Washington Counties in Pennsylvania. This same land synergy also complements the infrastructure footprint of EQT Midstream Partners, LP, where growth opportunities are expected through drop-downs and additional organic projects. Already a leading producer in the Appalachian Basin, this acquisition will make EQT the largest natural gas producer in the United States.
EQT will also obtain Rice’s midstream assets, including a 92% interest in Rice Midstream GP Holdings LP, which owns 100% of the general partner incentive distribution rights and 28% of the limited partner interests in Rice Midstream Partners LP (RMP), and the retained midstream assets currently held at Rice. The retained midstream assets, which EQT intends to sell to EQM in the future through drop-down transactions, are expected to generate approximately $130 million of EBITDA in 2018. See the Non-GAAP Disclosures section for important information regarding the non-GAAP financial measures included in this news release.
The boards of directors of both companies have unanimously approved the transaction. Completion of the transaction is subject to the approval of both EQT and Rice shareholders, as well as certain customary regulatory and other closing conditions.
On the ratings front, Rice Energy has been the subject of a number of recent research reports. In a report released today, Williams Capital Group analyst Gabriele Sorbara reiterated a Buy rating on RICE, with a price target of $27, which implies an upside of 7% from current levels. Separately, on June 16, Mizuho’s Tim Rezvan maintained a Buy rating on the stock and has a price target of $34.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Gabriele Sorbara and Tim Rezvan have a yearly average loss of 7.0% and a return of 12.8% respectively. Sorbara has a success rate of 38% and is ranked #4357 out of 4570 analysts, while Rezvan has a success rate of 54% and is ranked #755.
Sentiment on the street is mostly bullish on RICE stock. Out of 8 analysts who cover the stock, 7 suggest a Buy rating and one recommends to Hold the stock. The 12-month average price target assigned to the stock is $34.00, which represents a potential upside of 34% from where the stock is currently trading.
Rice Energy, Inc. engages in the acquisition, exploration, and development of natural gas and natural gas liquid (NGL) properties in the Appalachian Basin. It operates through the Exploration and Production and Midstream segments. The Exploration and Production segment involves in the acquisition, exploration and development of natural gas, oil and NGLs. The Midstream segment offers gathering and compression of natural gas, oil, and NGL production of, and in the provision of water services.