Attention LINN Energy Investors: The Countdown Begins

Some thought this announcement would never come. For whatever reason, they just didn't think that LINN Energy (NASDAQ: LINE  ) and its offspring LinnCo (NASDAQ: LNCO  ) were good enough to build a new life together with oil-rich Berry Petroleum (UNKNOWN: BRY.DL2  ) . However, for those of us who've supported this pairing since the very beginning, it was great to see the announcement that the date is now set. Mark your calendars for September 30th, which is the new record date for the proposed merger.

Of course, there are a few minor details that need to be worked out and LINN announced that it's working diligently to get all the required paperwork filed in time. But it would appear that barring any last minute setbacks, this deal is about as good as done. Really, it's great news for everyone involved and here's why.

Why this is a great deal for LINN
While LINN certainly survived without Berry, the two are better together than flying solo. For example, without Berry, LINN's all important distribution coverage ratio would be 0.95 times in the fourth quarter. That would be a continuation of the danger zone that has attracted short-sellers to its units. However, with Berry that same ratio would be a much more secure 1.16 times. Clearly, LINN could use the oil-rich cash flow that Berry would provide it.

However, that's not all Berry brings to the table. As the map below shows, the two complement each other quite well.

Source: LINN Energy

In addition to adding complementary assets in the Permian Basin and East Texas, Berry adds to LINN's operations in California while bringing the Uinta and Piceance Basins into the fold. Diversifying its production and reserves will help to further solidify the distribution. Finally, Berry adds a lot of potential for growth. For example, the combination nearly doubles LINN's drilling inventory in the Permian Basin. Bottom line, Berry is everything LINN could have wanted in a partner and why it has worked so hard to get this deal closed.

Why this is a great deal for LinnCo
LinnCo will enjoy those same benefits and more. First, it will likely become LINN's vehicle to pursue future growth transactions. In addition to public companies like Berry, there are a number of private corporations holding low-decline oil assets that would be a perfect pairing for a LinnCo led exit strategy. That's likely to lead LinnCo's shares to continue to trade at a premium to LINN's. Finally, the tax advantaged income structure, without all of the paperwork headaches of a Schedule K-1, could make LinnCo the go-to stock for income investors.

Why this is a great deal for Berry
Berry investors gain three overlooked advantages in merging with LINN and LinnCo. First, Berry investors will finally start to see a real, tangible return from the assets the company has built over the years in the form of monthly dividends. Sure, Berry could have started paying a dividend or even become its own MLP, but this really is the most efficient way to begin returning cash to its investors. Second, like I mentioned with LINN, the pairing adds tremendous diversification. For example, Berry investors will now be a bit more open to the upside of natural gas, in addition to reducing the risk of being too concentrated in California. Finally, Berry investors are now part of what is one of the best growth and income opportunities in the energy sector by becoming part of LINN Energy. Bottom line, Berry investors that hold on for the long-term should do very, very well.

Final Foolish thoughts
With the date now set, investors can breathe a little bit easier knowing the deal is one step closer to going through. It's also less likely there will be any negative surprises given that we're just three weeks away. Let the countdown begin. 

Dividend stocks like LINN Energy or LinnCo can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies, and it see if LINN made the list, you can download this valuable free report by simply clicking here now.


Read/Post Comments (5) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 11, 2013, at 2:49 PM, Peckerpimple wrote:

    I wish you guys with no units would cut the crap about it being a paperwork nightmare to do a few or even 10 states tax returns.

    It is simple. My CPA give me the envelopes. One for the Feds, plus 4 estimated quarterlies.. I write relatively small check to 10 states. I put my return address on the envelopes and put a stamp on the envelopes and walk to the mailbox.

    $1,300 to the CPA, Tax Lawyer for $450,000 in income. Well worth it. The quarterly estimates to the Feds are $3,000.

    It is time to be a Senior not a Sophomore, let alone a Fool. Dig in, put your money where your mouth is.

  • Report this Comment On September 11, 2013, at 2:57 PM, DrGoldin wrote:

    Here's the part I don't understand. As of this moment, LINE trades at 27.89, BRY at 43.90. If BRY shareholders are going to get 1.25 shares of LINE for each share of BRY, they'd be losing money on the deal. Why would they vote to approve it?

  • Report this Comment On September 11, 2013, at 4:16 PM, TMFmd19 wrote:

    @Peckerpimple - "Fool contributor Matt DiLallo owns shares of Linn Energy, LLC and Linn Co, LLC ."

    Like you my CPA handles everything. However, not every investor can afford to hire a CPA, so LinnCo is a better option. Not only that, but its more IRA friendly.

    Best,

    Matt

  • Report this Comment On September 11, 2013, at 4:19 PM, TMFmd19 wrote:

    @DrGoldin - The deal isn't LINE for BRY but LNCO for BRY. LinnCo is currently at 32. That values the deal closer to $40 and its likely to move up even more as the deal becomes a more sure thing.

    Matt

  • Report this Comment On September 11, 2013, at 4:44 PM, Peckerpimple wrote:

    Matt,

    My IRA has somewhere about a (-40,000) balance because of LINE, so I would need $40,000 in positive income before the UBIT took effect and it seems that each year the negative figure grows. Schwab does the return for free and I have never had to pay any taxes from 2 IRAs.

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