08:47 AM EDT, 03/11/2024 (MT Newswires) -- EQT (EQT) agreed to buy back its former Equitrans Midstream (ETRN) unit in an all-stock deal to establish an integrated natural gas business, with an enterprise value of more than $35 billion, the companies said Monday.

Under the terms, EQT will exchange 0.3504 of its stock for each share of Equitrans, reflecting an implied value of $12.50 apiece for the natural gas producer. The transaction values Equitrans at roughly $5.46 billion, according to MT Newswires' calculations. Shares of Equitrans jumped 8.2% in premarket trading while EQT dropped 4.3%.

The deal, which requires approval from regulators as well as shareholders of both companies, is expected to close in the fourth quarter. The transaction closing is also subject to the Federal Energy Regulatory Commission authorizing the start of Equitrans' Mountain Valley Pipeline project.

EQT will have a roughly 74% stake in the combined company while Equitrans investors will own the remaining 26%. Three of Equitrans' representatives are anticipated to join EQT's board after the deal closes.

"As we enter the global era of natural gas, it is imperative for US natural gas companies to evolve their business models to compete on the global stage against vertically integrated rivals," EQT Chief Executive Toby Rice said in a statement. "We have identified multiple, high confidence near-term synergies, with significant upside from future infrastructure optimization projects that we believe will drive material value creation for shareholders over time."

The transaction is anticipated to generate annual cost synergies of $250 million and potentially $175 million of additional synergies per year from the optimization of system pressures, integration of water networks, as well as through expansion projects. The deal is also estimated to be substantially accretive to cash flow on a per-share basis, with projected free cash flow generation of about $16 billion from 2025 to 2029 at recent natural gas prices, according to the companies.

The integration of contractual volume commitments is set to eliminate more than $11 billion of future liabilities. The companies have also identified a "low-risk" path to repay more than $5 billion of debt in the near term through $3.5 billion of asset sales and organic free cash flow.

EQT spun off Equitrans Midstream ( ETRN ) as a standalone entity in 2018. The natural gas production company formed the unit to hold its midstream business as it sought to separate its upstream and midstream operations.

"This strategic transaction with EQT is the culmination of an exhaustive process conducted by the ETRN board to determine the best strategic path forward for our shareholders, employees, and stakeholders," Equitrans Executive Chairman Thomas Karam said. "The transaction delivers full and fair value to ETRN shareholders and provides the opportunity to participate in future value growth."

Price: 35.64, Change: -1.88, Percent Change: -5.01