Linn Energy (LINE -2.9%) and LinnCo (LNCO -4.3%) are lower after Goldman Sachs downgrades each to Neutral From Buy, as the firm believes a string of catalysts have allowed investors to realize previously deeply discounted value, and a more balanced risk/reward outlook now is expected.
Goldman had thought the sharp sell-off following announcement of the SEC inquiry, concerns over its hedge accounting and maintenance capex, and fears over the Berry (BRY) acquisition were overdone.
The firm says the next leg up for the units/shares now requires improved operational results and additional accretive M&A, two potential but longer-term and more difficult catalysts to realize value.
Linn Energy (LINE +2.6%) and Berry Petroleum (BRY +6.6%) are both sharply higher after LINE increased its offer for BRY by $600M to $4.9B.
Both parties also agreed to extend a deadline on the merger transaction through Jan. 31, 2014. after LINE's initial bid had set an Oct. 31, 2013 deadline.
MLV analyst Michael Peterson says the revised offer may be a structural positive for LINE and vindicate its accounting but it also could prove expensive: "This is a 34% premium to the deal that was previously announced, and I don't know if anyone that thought the deal was accretive by 34%."
Jim Cramer is a fan of the deal: "Yes, Linn has to pay up, but even at these prices, given what we've seen in oil and what we've seen that Berry Petroleum has in California, in the big shales there, I think this is terrific... If [LINE] stays in the $29-$32 region, we will buy even more."
Berry Petroleum (BRY) stockholders will now receive 1.68 shares of LinnCo (LNCO) for each share of Berry they own, up from 1.25 shares previously and bringing the size of the deal to $4.9B, including the assumption of debt.
LinnCo's stock was in the mid-high $30s when the deal was announced in February and closed at $33.21 last night.
Linn Energy (LINE) and Berry Petroleum CEOs: "The boards and management teams of LINN and Berry remain committed to completing this merger."
The merger termination date is extended to January 31 from October 31; a shareholder vote is tentatively set for mid-December.
Linn Energy reschedules its quarterly earnings call to tomorrow at 11ET at which it will also discuss the Berry merger.
Stocks are halted and will resume trading at 7:30 ET.
Linn Energy (LINE +10.8%) and LinnCo (LNCO +10.9%) could be in the clear from the probe of their accounting activities, after the companies file an amended S-4 which says the SEC's Division of Corporation Finance has advised that it has no further comments on Amendment No. 6 to the Joint Registration Statement.
Hedgeye's Kevin Kaiser laments: "One of most expensive E&Ps in US. With zero organic growth and highly aggressive accounting. Who cares I guess."
Linn Energy (LINE +5.3%) is up sharply after promising Q3 results included better than expected daily production of 823M cfe and $2M of net cash in excess of what it paid in distributions.
Although the numbers were good enough to make Raymond James say LINE "has finally turned the corner," RBC cautions that, with so many moving parts impacting the distribution of potential outcomes regarding the Berry (BRY +0.2%) merger, any attempt at prediction is premature.
Linn Energy (LINE): Q3 EPS of -$0.13 may not be comparable to $0.20 consensus estimate.
Q3 oil, natural gas and natural gas liquids revenue of ~$538M, up 21.2% Y/Y.
Q3 production of 823M cfe/day vs. 782M in the year-ago period; expects Q4 production to average ~850M cfe/day, at the mid-point of LINE's guidance range, which does not include the potential impact of ethane rejection.
Berry Petroleum (BRY +0.3%) said last night in an SEC filing that if the closing of its proposed merger with Linn Energy (LINE -4.6%) and LinnCo (LNCO -4.4%) does not occur on or prior to Oct. 31, any of the companies involved may unilaterally terminate the merger agreement.
"There can be no assurances as to whether the parties will agree to extend the End Date or that the parties will refrain from exercising their rights to terminate the Merger Agreement," according to the 10-Q.
UBS sees opportunity ahead for energy MLPs, believing some of the "issues" that have clouded prospects - including negative scrutiny about practices at Linn Energy (LINE) and LinnCo (LNCO) which cast a cloud over the upstream MLP group - will fade.
Many risk factors are priced in at current levels, and there are some valuation opportunities, the firm says.
Mid-Con Energy Partners (MCEP) wins UBS accolades on its higher distribution potential and limited exposure to downside scenarios; other top picks are BreitBurn Energy Partners (BBEP) and LRR Energy (LRE).
UBS actually awards LINE a Buy rating, along with QR Energy (QRE); it's neutral on Legacy Reserves (LGCY), LNCO and Vanguard Natural Resources (VNR).
Janney Capital views the action as "an expression of confidence" it will be the final round of comments from the SEC and that the companies will soon have clearance to proceed with a shareholder vote; the firm says the update is a positive development in a long SEC review process amid of a flurry of negative reports on Linn's hedging practices and accounting.
Deutsche Bank yesterday and Credit Suisse today have defended the Kinder companies; "KMP has been consistent in how to account for growth vs. maintenance capital over the years and has consistently delivered on its budgeted cash flow targets to investors over the last 12 years," CS says.
Gimme Credit reiterates its Outperform call on Kinder bonds with a stable credit trend rating; "we only mention it because KMP, as a growth-oriented MLP, needs access to the equity market to offset debt-financed growth capex."