Seeking Alpha

LinnCo, created to help partnership Linn Energy (LINE +2%) attract more institutional investors,...

LinnCo, created to help partnership Linn Energy (LINE +2%) attract more institutional investors, sold 30.25M shares at $36.50 each to raise $1.1B in its IPO, pricing the shares below the proposed range. LINE has increased production more than fourfold in five years and nearly doubled reserves in 2011. Each share of LinnCo represents a unit in LINE, and it will own 13.2% of the partnership.
Comments (24)
  • Sell T and buy Line.
    12 Oct 2012, 11:27 AM Reply Like
  • Sell T (did that a while back) and buy LNCO (plan to do that).
    13 Oct 2012, 01:19 PM Reply Like
  • Still no symbol for LinnCo that I can find.
    12 Oct 2012, 12:04 PM Reply Like
  • LNCO
    12 Oct 2012, 12:07 PM Reply Like
  • Where did you see that?
    12 Oct 2012, 12:08 PM Reply Like
  • LNCO
    13 Oct 2012, 12:23 PM Reply Like
  • I see it when I enter the ticker symbol to attempt a trade on Fidelity. However it doesn't show up when I enter it as a quote on Google Finance. probably too new.


    is it best to wait a few days on LNCO til the price action settles? what's a good buy price?
    12 Oct 2012, 12:21 PM Reply Like
  • Can someone explain this to thick-headed me?


    Is this being done so that institutional investors don't have to directly own stock of an MLP if that's forbidden or undesirable for whatever reason?


    If so, that seems huge to me.


    How would LinnCo handle the distributions?


    What percentage of LINE distributions would LinnCo pay?
    12 Oct 2012, 12:34 PM Reply Like
  • This allows entities that can not UBTI(such as IRAs and charities) to invest indirectly in LINE. The distribution LNCO receives will be reduced by the taxes it must pay on that income. In the prospectus there is an estimate of what that amount is but I can't recall the exact number. I believe there was a range given and as I recall it was around 5%. So a holder of LNCO will get approximately 95% of what a holder of LINE would receive. Frankly, I think it is a brilliant idea that costs LINE nothing and allows it to be able to sell equity to a larger pool of potential investors presumably resulting in a lower cost of capital.
    12 Oct 2012, 01:19 PM Reply Like
  • ge12ar:
    In addition to solving the UBTI issue, LNCO also provides an avenue to invest in LINE for those who are intimidated by K-1s and prefer 1099s (a surprisingly large number of people).
    Also, while the LNCO S-1 may say that LINE distributions may be 95% a return of capital, historically LINE's distributions have been 100% returns of capital so the LNCO share holders will likely get a distribution identical to those of LINE unit holders.
    Elliot Miller
    12 Oct 2012, 03:43 PM Reply Like
  • Elliot,


    Thanks once again for your informative comments. I always learn something from you.
    12 Oct 2012, 06:35 PM Reply Like
  • The example given in the prospectus was approximately 6 - 15 cents a share.
    12 Oct 2012, 06:47 PM Reply Like
  • I believe this is the amount of the tax on each share's dividend. My financial advisor puts the anticipated div/shr at $2.75 - $2.84. Would love to hear other's thoughts. Long LINE for over 3 years and very pleased.
    13 Oct 2012, 10:21 AM Reply Like
  • According to LNCO's prospectus, they estimate next year's dividend will be $2.84. This estimation is based on LINE's $2.90 distribution, less the 6 - 15 cents a share tax to be paid on the dividend.
    13 Oct 2012, 11:13 AM Reply Like
  • There went my chance to get more LINE under $40. Dang.
    12 Oct 2012, 01:40 PM Reply Like
  • YUP.
    13 Oct 2012, 12:23 PM Reply Like
  • LNCO closed at a 5.6% discount to LINE. Why? 1 unit of LNCO = 1 unit of LINE.
    13 Oct 2012, 01:17 PM Reply Like
  • Maybe because LNCO was priced at $36.50 when it started trading, and LINE was about $40 at the time?


    LNCO did, however, gain 4.82% for the day, while LINE gained only 1.35% for the day. The 3.5% differential seemd to close some of the gap.
    13 Oct 2012, 04:21 PM Reply Like
  • Yes, also trying to figure out why the discount of LNCO to LINE. If there is a one to one correspondence of units to shares, LNCO is a better yield actually and with a 1099 instead of K1, clearly the better way to go at this discount.
    14 Oct 2012, 02:20 AM Reply Like
  • Actually you do not have to worry about UBTI on an IRA from LINE or other MLPs unless the total income subject to tax exceeds $1000, in which case you have to file a Form 990 and pay the tax.


    Many MLPs give big distributions that are not reported as taxable distributions. Before I realized this, I transferred LINN out of my IRA into my margin account to avoid what I thought would be subject to UBTI.


    I think the dividend from LNCO will be about the same as from LINN, but may be subject to tax even if the LINN distrubutions aren't. In an IRA,however, there would be no tax from LNCO dividends even
    if they exceeded $ 1000.
    14 Oct 2012, 11:28 AM Reply Like
  • Thanks everybody for great comments.
    14 Oct 2012, 12:49 PM Reply Like
  • Kinder KMP has always sold for about 6 dollars more than KMR the LNCO equivalent. Maybe the difference is due to the dividend for LNCO and KMR being slightly smaller.
    15 Oct 2012, 10:35 AM Reply Like
  • The KMR dividend is the same cash as the KMP dividend, converted into shares.
    15 Oct 2012, 11:43 AM Reply Like
  • Why is LNCO trading at a discount to LINE? If "returns of capital" are tax-free for LNCO as a corporation, what happens when LNCO's tax basis in LINE goes down to zero? Historically the tax basis of MLP owners is zero after approx. 10 years holding (look at your K1's). Would all LINE distrubutions to LNCO then be subject to corporate taxes? If the corp tax rate is ca. 33%, which would then be payable in perpetuity, this would justify a discount of ca. 33% according to DCF cash flow valuation methods. As we now, financial markets value anticipated future cash flows, so we don't have to wait 10 years for a big price drop of LNCO in comparison to LINE. Sorry I'm just thinking loud and very rough estimates, please correct me if I'm wrong in my analysis.
    23 Oct 2012, 03:54 PM Reply Like
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