Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Linn Energy LLC (LINE), Berry Petroleum Company (BRY): Is The Linn-Berry Merger in Trouble?

The planned merger between Linn Energy LLC (NASDAQ:LINE) and Berry Petroleum Company (NYSE:BRY) has been eagerly anticipated by investors for many months. Berry Petroleum Company (NYSE:BRY) shareholders will receive a healthy premium for their shares, and Linn Energy LLC (NASDAQ:LINE) investors get to see their company advance its major strategic priorities.

Linn Energy LLC (NASDAQ:LINE)Unfortunately, when the Securities and Exchange Commission gets involved in a deal, it’s rarely good news. That’s exactly what happened on June 2, and investors need to sift through the rubble to determine if they want to stick around for the conclusion.

The SEC comes calling

Linn Energy LLC (NASDAQ:LINE) said it had agreed to voluntarily disclose information to the SEC’s informal review. The SEC had previously requested this information pertaining to the Berry Petroleum Company (NYSE:BRY) deal, the non-GAAP financial reporting measures provided to investors, and the company’s internal hedging strategies.

Linn Energy LLC (NASDAQ:LINE) and LinnCo LLC (NASDAQ:LNCO), essentially a holding company for Linn Energy LLC (NASDAQ:LINE), both declined more than 12% on the day of the announcement. Berry Petroleum Company (NYSE:BRY) didn’t escape unscathed, falling 5%.

Berry Petroleum Company (NYSE:BRY) wasn’t hit nearly as hard as the two Linn-related stocks, likely because Berry Petroleum Company (NYSE:BRY)’s accounting practices aren’t in doubt, and the company is successful with or without the merger. Berry’s discretionary cash flow rose 6% in its most recent quarter, and the company’s operating margin increased 2 percentage points during the first three months of the year.

Linn Energy LLC (NASDAQ:LINE), meanwhile, has been under heavy scrutiny in recent months from a variety of outlets. A negative article in Barron’s and a presentation by hedge fund Hedgeye Risk Management put a spotlight on the company’s accounting practices. In addition, analysts were quick to downgrade Linn in the wake of the SEC inquiry.

At the same time, Linn is getting a boost from noted investor Leon Cooperman, whose firm Omega Advisors is the largest outside investor of Linn Energy. All told, Omega holds more than $200 million of Linn.

Is the deal dead?

Fundamentally, investors need to know whether or not the Linn-Berry deal will proceed as planned. If you believe the market reaction on the day of the SEC inquiry, it doesn’t look good. The market is clearly betting that this won’t end well.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.