(Reuters) - Proxy adviser Institutional Shareholder Services urged investors of natural gas producer EQT Corp (EQT.N) to vote in favor of all the nominees of shareholders Toby and Derek Rice, sending the company’s shares up 8%.
The Rice brothers, who own about 3% of EQT, were part of the founding team at Rice Energy, which EQT bought in November 2017. They hold the EQT management responsible for its underperformance since the merger and have been pushing for an overhaul of its board.
EQT stock has lost nearly 59% since the completion of the Rice merger, compared with an 8.8% fall in the broader S&P Energy Index .SPNY during the same period.
ISS said on Friday that shareholders should support all seven nominees by Rice brothers and five existing members of the board it backs.
“Given recent improvement’s in EQT’s operational and financial performance, we had thought that ISS would lean toward EQT’s existing management,” RBC Capital Markets analyst Scott Hanold said in a note.
But the Rice team’s track record of success, strongly aligned incentives and thorough business plan tipped the scales in its favor, he said.
The Rice team is also backed by EQT’s fourth and sixth largest shareholders - DE Shaw Group and Kensico Capital Management Corp - who together own 8.2% of the gas producer, according to data from Refinitiv.
EQT, however, strongly disagreed with ISS’ recommendations. “As compared to EQT’s purpose-built Board, the Toby Rice Group nominees are significantly less qualified, less experienced and highly conflicted,” the company said.
Last month, under pressure from shareholders, EQT already replaced three long-serving directors, following which the Rice brothers also cut their nominees to the company’s board to seven from nine.
“Although the board has undergone considerable refreshment since the 2017 merger...the significant value destruction overseen by legacy directors in the interim poses a question to shareholders,” the ISS report said.
Toby Rice said the recommendations “clearly affirms that the Rice Team’s plan is the only viable path toward transforming EQT into a modern, low-cost gas operator and realizing the potential of the merger with Rice Energy”.
The annual shareholder meeting is scheduled on July 10.
Reporting by Debroop Roy in Bengaluru; Editing by Shinjini Ganguli