In the fight to control EQT, it appears like the momentum has just shifted in favor of EQT’s existing management. No more defense, EQT’s management team and board are now on offense. Yesterday the board and CEO Rob McNally released their list of proposed nominees to be voted on at the annual meeting in July. Three longtime members of the existing board including (surprisingly) board chairman Jim Rohr, will be out. Three new members have been named to replace them. Most important, in a bold move, EQT is adopting a “universal proxy card”–something advocated by Toby and Derek Rice in their attempt to replace the board. We explain this important development below…
In addition to board chairman Jim Rohr leaving, so too is longtime board member Bray Cary. Does that name ring a bell?
In 2017, MDN told you about the kerfuffle over EQT board member Bray Cary and his work as an unpaid, “informal” adviser to WV Gov. Jim Justice (see EQT Bd Member Continues to Stir Controversy in WV Gov Office Role). Cary has his own “swipe card” giving him 24/7 access to the WV Capitol. He routinely takes part in policy-oriented meetings. He’s not on the payroll and he doesn’t answer to anyone. He’s also not subject to the state Ethics Act.
At the time we said: “Because Cary sits on the EQT board, and EQT has big assets in WV, critics see a conflict of interest. In our own simple words, Bray Cary has become a problem for EQT–a problem that needs to get fixed, fast. He either needs to end his role as unpaid adviser to West Virginia Gov. Jim Justice, or resign from EQT’s board of directors.” As far as we know, Cary never left his unpaid post with Gov. Justice. Come July, the “Cary problem” will get fixed when he’s dropped from the board.
As for the business of a universal proxy card, in April Toby and Derek Rice sued EQT claiming the company was fooling around with the proxy card issue, which potentially could lead to confusion by shareholders in knowing who they would be voting for–an EQT board member, or a Rice board member. At the time the lawsuit was launched (since retracted), Toby Rice said: ““We believe both sides agreeing to use a universal proxy card would reflect best-in-class corporate governance, as the most qualified directors would be elected regardless of which proxy card a shareholder voted on.”
In the case of voting for company boards, you either vote for one complete slate of candidates (EQT), or the other (Rice). You can’t mix-and-match candidates from the two proxy cards. That is, unless you attend the annual meeting in person and vote at the meeting. In that case you can mix-and-match.
The exception to the above “all or nothing” rule is if a company adopts a relatively new creation called the universal proxy card, which allows stockholders to vote for the nominees of their choosing from both the company and alternative slates. With universal proxies you CAN mix-and-match. The Rices’ said in their press release that either EQT should should send out two different proxy cards–one with EQT’s slate of proposed board members, the other with Rice’s proposed board–OR use a universal proxy card. Be careful what you wish for.
In addition to adopting a universal proxy, which can be a risky venture for existing management (hence our assertion this is a bold, offensive move), EQT CEO McNally issued a scorching letter to Toby Rice telling him (our words in summary), that EQT is a new company, having been transformed over the past six months–with the right board and the right management team–already producing big results. And that the Rice’s meddling and attempts to replace top management and the board are the wrong move at the wrong time.
Below is a copy of yesterday’s EQT announcement of who’s in and out with their board nominees, and the scorching hot letter to Toby Rice.
EQT’s adoption of a universal proxy is gutsy and a show of confidence. It is a bold move. If shareholders elect some of Rice’s proposed board members, they will have a split board with “agitators” constantly questioning and possibly working against current management.
Strongly held opinions have been voiced about universal proxies, both pro and con. Activist hedge funds…tend to favor universal proxies, while companies are more often opposed to them. According to Reuters, activists “say the present system works against them because shareholders are more likely to play it safe and vote for the management list, even if they like some of the activists’ candidates. Companies say changing the rules would spark more disruptive and harmful activist-led fights.” Indeed, in a 2015 speech, Mary Jo White, who chaired the SEC when the [universal proxy] proposal was was issued in 2016, said that a hotly debated question was whether universal proxies “would increase or decrease shareholder activism or otherwise impact the outcome of election contests. Some believed that it would embolden activists to run more contests. Others posited that it could stimulate increased cooperation and settlements between issuers and activists, thereby decreasing contests. No one specifically called into question the fundamental concept that our proxy system should allow shareholders to do through the use of a proxy ballot what they can do in person at a shareholders’ meeting.” (1)
This is how the Wall Street Journal reports the news:
EQT Corp. is replacing three of its longest-serving directors as it heads into a proxy fight with two brothers who want to take over running the natural-gas producer.
The Pittsburgh-based company nominated its 12-person slate of directors on Wednesday with three newly added energy executives in place of Chairman James Rohr and directors Bray Cary and Lee Todd.
The Wall Street Journal first reported on EQT’s plans earlier Wednesday.
EQT is facing off against Toby Rice and Derek Rice—two of the brothers who sold Rice Energy to EQT for roughly $6.7 billion in 2017—in a proxy fight. The brothers, who with their family control roughly 3% of EQT’s shares, have been frustrated with its operations and are pushing for Toby to replace its chief executive, Robert McNally.
They have already nominated their own nine-person slate, which includes Toby and their brother Daniel Rice, a current member of EQT’s board. EQT also included Daniel Rice on its slate.
EQT’s new candidates are Janet Carrig, former general counsel at ConocoPhillips, James McManus, who ran Energen Corp. until its sale last year, and Valerie Mitchell, CEO of Corterra Energy. The company hopes that by replacing three directors, each of whom served for more than 10 years, it can win the support of shareholders who might otherwise be inclined to back the Rice team’s nominees.
EQT said it plans to use a universal ballot for its shareholder vote, setting it up to be one of the few high-profile proxy fights to use such cards, which allow shareholders to pick from both sides’ nominees. The Rice team has already said it would support use of such ballots, which are promoted by corporate-governance advocates but little used in practice. Universal ballots can make it more likely a company will lose some board seats to a dissident but less likely they’ll lose a majority of seats.
Shareholders are set to vote at the company’s annual meeting July 10. There have been no substantive settlement discussions between the two sides since the brothers launched their proxy fight, according to people familiar with the matter. EQT had earlier this year offered to consider Toby Rice as its new chief operating officer, though the brothers rejected the idea at the time and the company has since named a COO.
Last month, EQT reported better-than-expected first-quarter earnings. Profit totaled $190.7 million, compared with a loss of nearly $1.59 billion, due to a $2.33 billion impairment charge, in the same period a year earlier.
EQT’s stock is up 8% this year, trailing broader markets, and is down by 26% over the past 12 months. It closed down 1.2% at $20.44 Wednesday. (2)
The soap opera continues. Tune in for our next episode!
(1) Mondaq Advice Centers/Cooley LLP (Jul 18, 2018) – United States: So Long To Mandatory Universal Proxy?
(2) Wall Street Journal (May 8, 2019) – EQT Moves to Replace Three Long-Serving Directors Ahead of Shareholder Vote
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