About Linn Energy and Berry Petroleum
Linn Energy is a pure-play oil and natural gas company that primarily develops properties in the western half of the United States. Its principal holdings include tracts in the Permian Basin Royalty Trust (NYSE:PBT), Bakken Shale region, various areas within California, the southern Great Plains, Missouri Highlands, and the northern portion of Lower Michigan. It has nearly 8,000 wells and about 3.4 trillion cubic feet of oil and gas equivalents. Linn Energy LLC (NASDAQ:LINE) employs around 1,150 full-time staff members and lost about $391 million on gross 2012 revenues of $1.7 billion.
Berry Petroleum is a full-service exploration and drilling company that operates a number of proven and producing oil and gas properties in the western United States. Its principal holdings are concentrated in the Permian Basin near Midland, Texas, the shale fields near Bakersfield, Calif., and the Green River Shale in Utah and Colorado. All told, the company has over 3,000 hydrocarbon wells and can point to proven reserves of at least 130 million barrel-equivalents of oil and natural gas. Berry Petroleum Company (NYSE:BRY) earned $171.5 million on gross 2012 revenues of around $978.6 million.
How the Deal Is Structured
Under the terms of the proposed deal, Berry Petroleum shareholders will receive compensation in the form of 1.25 Linn shares for every Berry share that they own. Since these shares will be created for the purposes of the transaction, they will add significantly to Linn’s total float.
At Linn Energy LLC (NASDAQ:LINE)’s current share price of approximately $37.39, this transaction values each Berry share at about $46.74. Relative to Berry’s current share price of $45.63, this represents a premium of approximately 2.4%. Relative to Berry’s pre-announcement share price, the deal offers a premium of roughly 20%. The combined company would have revenues of well over $2 billion. Further, Linn’s management team estimates that the deal could add 40 cents to its per-share earnings figure. The company is also considering a 6% dividend increase that could take effect as soon as the deal is completed.
Complications and Legal Issues
This deal’s successful completion hinges on certain customary closing conditions, including a full shareholder vote and approval from Berry’s board of directors. Given the handsome premium that Linn appears willing to pay for the company, neither of these obstacles is likely to get in the way of the merger’s eventual completion. Although the deal will also be subject to a customary regulatory review by the appropriate U.S. authorities, the modest size of these players makes any intervention unlikely. After all, the U.S. oil and gas industry is competitive enough to absorb a $4 billion merger without suffering any adverse effects.
