Natural gas producer EQT (NYSE: EQT) has a deal in place to buy pipeline operator Equitrans Midstream(NYSE: ETRN) for $5.5 billion, bringing a former subsidiary back in-house. Investors reacted by sending shares of EQT down about 7% as of 10:18 a.m. ET.
A "transformational" acquisition
EQT is a natural gas production company focused on the Appalachian Basin, including the Marcellus shale basin. In 2018, the company spun its pipeline operations out as an independent business under the watchful eye of activist investor Jana Partners.
On Monday, the EQT announced plans to reacquire the business. Terms of the deal call for EQT to pay 0.3504 of its shares for each share of Equitrans, or about $12.50 per share based on Friday closing prices, a premium of 12% over Equitrans' $11.15 Friday close.
The deal would give EQT ownership of the Mountain Valley Pipeline project, which is designed to ferry gas from the Marcellus area to the U.S. Southeast, with potential connections to Gulf Coast export projects. EQT said the deal would help reduce its break-even point for gas exploration.
"Equitrans is the most strategic and transformational transaction EQT has ever pursued, and we see this as a once in a lifetime opportunity to vertically integrate one of the highest quality natural gas resource bases anywhere in the world," EQT CEO Toby Z. Rice said in a statement. "As we enter the global era of natural gas, it is imperative for U.S. natural gas companies to evolve their business models to compete on the global stage against vertically integrated rivals."
Is EQT a buy after its big pipeline deal?
The Mountain Valley Pipeline project is years behind schedule and has proven to be a lightning rod for political controversy and local opposition, but it is expected to be completed in the first half of this year. If all goes to plan, EQT will have skipped past some of the firestorm and have Equitrans back under its umbrella in time to be a performing asset.
EQT post-deal would be a $35 billion vertically integrated natural gas behemoth with control over both a massive production area and about 2,000 miles of pipeline infrastructure. The company also sees opportunities to extract about $250 million in annual synergies.
Acquisitions are fraught with risk, and investors need to watch closely to see how well EQT can navigate securing approvals and integrating Equitrans. But if the company can execute to plan, it should be a big boost to what was already an attractive growth and income stock.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends EQT. The Motley Fool has a disclosure policy.
