The U.S. Federal Trade Commission (FTC) has resolved its review of EQT Corp.’s agreement to acquire Tug Hill’s upstream assets and XcL Midstream’s gathering and processing assets, both in the Appalachia region.
Both Tug Hill and XcL Midstream are backed by equity commitments from funds managed by Quantum Energy Partners.
The $5.2 billion acquisition has been held up by regulatory delays related to antitrust concerns, but the parties have now resolved those issues, and the deal moves forward. The firms expect to close on the deal within the next seven business days.
“We are pleased the FTC has completed its review, and we are now able to bring the acquisition of Tug Hill and XcL Midstream to a close. This acquisition will lower EQT’s cost structure, reduce EQT’s development risk, and increase cash flow and net asset value per share while maintaining our investment-grade balance sheet. It will also allow us to continue our progress in making the energy we produce more affordable, reliable, and cleaner,” said Toby Z. Rice, president and CEO of Pittsburgh-based EQT.
EQT is the largest natural gas producer in the country, with operations primarily in the cores of the Marcellus and Utica Shales in the Appalachian Basin. Quantum Energy’s Tug Hill is the eleventh largest Appalachian Basin natural gas producer, while XcL Midstream transports and processes Tug Hill’s natural gas production.
After its review, the FTC approved a consent order that prevents entanglements and the exchange of confidential, competitively sensitive information between Quantum Energy and EQT, which are direct competitors in the production and sale of natural gas in the Appalachian Basin.
Specifically, the acquisition, as initially proposed, would make Quantum one of EQT’s largest shareholders and give Quantum a seat on EQT’s board of directors. This was in violation of antitrust laws and would harm competition in this industry, FTC officials said. The FTC argued that making Quantum one of EQT’s largest shareholders would give Quantum the ability to sway EQT’s competitive decision-making and access EQT’s confidential and competitively sensitive information. This arrangement would create an unfair method of competition in violation of the FTC Act, the FTC’s complaint states.
The FTC’s consent order prohibits Quantum from occupying an EQT board seat, requires Quantum to divest its EQT shares, prevents anticompetitive information exchange, unwinds a separate anticompetitive joint venture between the two entities, and imposes additional restraints to protect competition.
“As originally structured, this deal would have resulted in an illegal interlocking directorate, facilitated the exchange of confidential and competitively sensitive information, and otherwise stifled competition in the Appalachian Basin,” Nathan Soderstrom, acting deputy director of the FTC’s Bureau of Competition, said. “The Commission’s order provides innovative and comprehensive relief to protect competition, as well as the millions of Americans who rely on Appalachian Basin natural gas to heat and power their homes.”
Specifically, the consent order would resolve the FTC’s competition concerns through provisions that:
- Prohibit Quantum from serving on EQT’s Board for the duration of the order and on the board of any of the top seven Appalachian Basin natural gas producers, which account for a substantial majority of the market, without prior Commission approval.
- Require Quantum to sell its EQT shares by a non-public date certain.
- Require that during the period when Quantum owns EQT shares, the shares will be held in a voting trust, and any votes will be carried out by the trustee proportional to all other EQT shareholders.
- Require that for the duration of the order, Quantum is prohibited from acquiring additional EQT shares absent prior Commission approval.
- Require Quantum and EQT immediately to unwind TMC, including any noncompete provisions.
- Impose further limitations on future entanglements between EQT and Quantum, including prohibiting Quantum and EQT from entering into noncompete agreements other than those in connection with and ancillary to the sale of a business, assets, or company.
- Require EQT and Quantum to each design, maintain, and operate an antitrust compliance program.
- Impose additional provisions designed to ensure the effectiveness of the consent order, including the appointment of a monitor to track compliance.