EQT Says Range Deal Delivers $325 Million A Year In Base Savings, Sees No Antitrust Snag
EQT's CEO and CFO laid out synergy, cash flow and leverage targets for the pending all-stock Range Resources merger on a Monday call.
EQT executives told analysts Monday that diligence on Range Resources found $325 million of annual base savings, and that they do not expect antitrust trouble with the pending all-stock merger. Range, a Fort Worth, Texas-based natural gas producer centered on the Marcellus Shale in Pennsylvania, would hand its shareholders 0.987 EQT shares for each Range share.
Synergies, cash flow and leverage
EQT CEO Toby Rice said the $325 million of base synergies come mostly from corporate and organizational efficiencies and operating savings. He also pointed to more than $300 million of additional long-term annual upside from midstream optimization, gas, LNG and LPG marketing, new premium supply deals and partnering to speed up inventory development.
Rice said the base savings will be paced over two to three years. CFO Jeremy Knop said most will land on the operating expense side, and that the upside synergies are slower to turn into cash because facilities take years to build.
Knop projected nearly $14 billion of five-year cumulative pro forma free cash flow at a $2.75 per MMBtu gas price, and north of $38 billion at $5. He put the combined company's unlevered free cash flow breakeven below $2 per MMBtu.
He set a pro forma maximum debt target of 1x net debt to adjusted EBITDA at $2.75 gas, and said the deal positions EQT to reach BBB or equivalent credit ratings from all agencies by early 2027.
Deal terms and the antitrust question
Existing EQT holders would own about 73% of the combined company and Range holders about 27%, with a pro forma enterprise value above $50 billion, Knop said. Asked by Wolfe Research analyst John Abbott whether the FTC could object given the combined Marcellus position, Rice answered "No. We do not."
Rice said he expects scheduling at Range to be business as usual for roughly the first 12 months. Range CEO Dennis Degner said the Range board judged EQT the best route to accelerate shareholder value, and that the deal separated itself from other Appalachian opportunities.
Why now: Appalachian gas demand
Rice said the catalyst was new demand emerging in Appalachia. He put EQT's productive capacity at north of 12 Bcf a day, and said Range has stated it could double its 2.5 Bcf a day and hold that flat for 15 years. Together that is 17 Bcf a day, against a demand opportunity he said could reach 20 Bcf a day.
Range's acreage sits near the Clarington, Ohio delivery point, which Rice called a focal point for new power generation and pipeline projects. EQT is running an open season, a process to gauge shippers' interest, for its power pipeline there.
EQT intends to file a Form S-4 registration statement carrying a joint proxy statement, ahead of shareholder votes at both companies.
Sources
- 425 — RANGE RESOURCES CORP re: RANGE RESOURCES CORP (RRC) — SEC EDGAR
- EQT to Buy Range Resources, Creating Largest US Gas Producer (1) — news.bloomberglaw.com
- Range Resources to be bought in $50 billion deal - Fort Worth Business Journal — bizjournals.com
- EQT to acquire Range Resources in $50B all-stock deal - Pittsburgh Business Times — bizjournals.com
- RRC Stock Surges To Over 11-Year High, RBRK Shares Hit Record Levels – What’s Fueling The Rallies Today? — Yahoo Finance
- Range Resources spikes 18% on EQT acquisition agreement (RRC:NYSE) | Seeking Alpha — seekingalpha.com
