For the first time, a dissident shareholder group won board control in a proxy contest using a “universal proxy card” that included the names of both the company’s and the dissident’s slates. The battle for a majority of the board seats at EQT Corporation was waged by brothers Toby and Derek Rice, whose November 2017 sale of Rice Energy to EQT made EQT the largest natural gas producer in the United States.
Following the acquisition, EQT’s performance suffered and its share price declined—ultimately falling to less than half its value at the time of the acquisition. The Rice brothers (who with their allies had a ~3% stake in EQT) reached out privately to EQT in late 2018 to discuss their concerns but then announced that they planned to wage a proxy fight for control of EQT’s board and, if successful, to appoint Toby Rice as its CEO.
Ultimately, the Rice Brothers nominated seven candidates to EQT’s 12-member board, including incumbent director Daniel Rice, who joined the EQT board after the sale.In a typical proxy contest for control, the company and the dissident shareholder send separate proxy cards to shareholders, with the company’s proxy card listing only management’s director nominees and the dissident’s card listing only the dissident’s slate. Accordingly, shareholders who choose to vote by proxy must choose whether to use the dissident’s proxy card or the company’s—neither of which presents a complete list of director candidates. (Shareholders who vote in person at the meeting may select a mix of director nominees from the two proposed slates.)EQT’s director nomination procedures, however, required that dissident nominees complete a form of questionnaire provided by the company, which included the nominee’s “consent to being named as a director or executive officer in [EQT’s] filings with the SEC.”
EQT interpreted this consent provision as a consent by the nominees to be included in EQT’s proxy materials, and refused to waive it. The Rice team pushed for EQT to use a universal proxy card, and EQT capitulated only after the Rice team challenged the fairness of the one-sided consent requirement in a Pennsylvania state court. In the end, EQT and the Rice brothers agreed to use a universal proxy card that listed all nominees, with the company’s card highlighting its 12 nominees and the Rice team’s card highlighting its seven nominees and the five EQT director candidates it designated as “unopposed.”
Ultimately, the Rice brothers’ campaign won the support of large EQT shareholders, including T. Rowe Price (~10%) and D.E. Shaw (~5%), and was backed by proxy advisor ISS. (Glass Lewis supported management in the contest.) In the end, each of the dissident group’s nominees won more than 80% of the votes cast at the EQT annual meeting, and Toby Rice was installed as EQT’s CEO.EQT is the first successful use of a universal proxy card by a dissident in the United States in a majority proxy fight. Although the SEC last proposed universal proxy card rules several years ago, those rules stalled in the proposal stage, and universal cards are seldom used. Companies can be expected to continue to resist using universal proxy cards in contested elections following EQT, even though the ballot form was likely not the determinative factor in the Rice team’s success.