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Key Takeaways
- Range Resources stock jumped 11% after EQT agreed to buy it for 0.987 EQT shares apiece, a 21% premium to Range’s Friday close.
- EQT fell 8% on the news, and with no cash in the deal, what Range holders get depends on EQT’s stock price.
- EQT expects $325 million of annual synergies within two years and a free cash flow breakeven under $2 per MMBtu.
- Both companies report third-quarter results after the close on Oct. 27, the first look at either business since the deal.
Range Resources (RRC) stock jumped 11% today after EQT (EQT) agreed to buy it in an all-stock deal. EQT President and CEO Toby Z. Rice says the combination “creates a must-own energy company.”
EQT’s own shareholders seem less convinced: the stock fell 8%.
What exactly happened
Before today’s open, the two companies announced that EQT will swap 0.987 of its shares for each Range share. That leaves EQT holders with about 73% of the combined company. EQT’s pitch for the combined company is all about scale and cost…
- More than 9 Bcfe/d of net production and over 30 years of drilling inventory
- $325 million of annual synergies within two years, with a path to more than $600 million long term
- An unlevered free cash flow breakeven under $2 per MMBtu
- About $20 billion of free cash flow over the next five years at recent strip prices
The deal is expected to close in the first quarter of 2027. It still needs regulators and both sets of shareholders to sign off.
TIKR tracks 25 analysts on Range Resources. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Range Resources, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Range Resources’ Analyst Ratings
Range holders now ride on EQT
With no cash in the deal, Range’s stock now moves with EQT’s. At Friday’s close, the exchange ratio valued Range at a 21% premium. EQT’s slide has eaten about half of that, and Range now trades right in line with what 0.987 EQT shares are worth.
Even so, the jump puts Range at a richer multiple than the market usually pays for it. Range traded at 12x forward earnings at Friday’s close, above its five-year average of 10x…
…and today’s jump takes it closer to 13x.
The bigger question is the stock Range holders are being paid in. EQT traded at 19x forward earnings at Friday’s close, well above its 14x five-year average.
Today’s drop pulls that closer to 17x, still rich by EQT’s own standards. That’s what makes the deal work for EQT: it’s paying for Range with a stock the market values far more highly, so it gets more earnings for every share it issues.
The rest of the premium is up to EQT
My take: Range holders got a solid premium. But from here, owning Range means owning EQT at a multiple above its usual level, and I’d want to see those synergies start showing up before calling it a must-own.
We’ll get a first look soon: both companies report third-quarter results after the close on Oct. 27. (They’ve canceled their Oct. 28 earnings calls.)
So what is Range Resources stock actually worth?
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Disclaimer:
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