Linn - Berry Merger: 30% Profit, Even If It Falls Through

| About: LinnCo, LLC (LNCOQ)

Linn - Berry Merger: 30% Profit, Even If It Falls Through

Linn Energy (LINE) through its corporate arm Linnco (LNCO) has made an offer to buy Berry Petroleum (BRY) for 1.25 shares of LNCO for each share of BRY.

SEC problems with LINE/LNCO's S4 merger filing has held up the merger and likely is responsible for the decline in the price of both Linn Energy and LinnCo stocks. Recently LINE has reported that it is in the process of revising the S4 merger filing to comply with the SEC requirements. Once Linn has finished its revision and resubmitted, the SEC will review it. Whether the new submission is approved or not is an unanswered question.

The prices of LNCO and BRY stocks are a reflection of the Market's perception of the likelihood of the merger happening. If the deal was already approved and to close tomorrow, BRY stock would be selling on the open market at just a few pennies below 1.25 times the price of the LNCO shares that will be given to BRY shareholders if the deal is consummated.

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As you can see, the price of Berry has not materially changed from its prior high, but the price of LNCO is selling at a 30% discount to the deal.


100 shares BRY current value

$ 4,790

125 of LNCO, current value

$ 3,686



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If or when the SEC approves the S4 filing, and the deal goes through as presently constituted, whatever the market price is at the time, BRY shareholders will get 1.25 shares of LNCO for each share of BRY. At the moment, Berry shareholders who like the deal and look forward to the high and growing dividend yield of LNCO, don't know whether the deal will go through.

In the past, I suggested that the large deal discount should prompt Berry shareholders to sell their BRY shares in the open market and take their profit. I think that is still good advice for Berry shareholders who are not enthusiastic about owning shares of LNCO.

For BRY owners who want the deal to close, there is another alternative; an alternative that will be more lucrative than if the Berry shareholders waited for the deal to go through.

If You Love The Deal

Sell 100 shares BRY

$ 4,790

Buy 125 shares LNCO

$ 3,686

extra profit

$ 1,104

Profit= + LNCO shares


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If you are a Berry shareholder and you love the deal, you can make that 30% discount that I mentioned earlier into 30% profit for yourself. Instead of waiting to get 1.25 shares of LNCO, you can get 162 shares of LNCO for each 100 shares of BRY that you own. Alternatively, you can stick with only 125 shares and pocket $1104 of cash profit for each 100 shares of BRY you own.

How to do this is simple.

Sell your BRY shares in the market, collecting $4790 per 100 shares. Then, using only the proceeds of the BRY sale, buy 162 shares of LNCO with the money. You then get even more LNCO shares than you were expecting and you get them even if the merger never goes through.

If you are content with only 125 shares of LNCO for each 100 Berry, then buy the 125 shares with the proceeds of the BRY sale and pocket the $1104 in leftover cash.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.