Linn Energy LLC

Transaction Type
Announce Date
Post Date
Close Date
Estimated Price
$4,600.0MM
Description

Purchases Berry Petroleum Co. for $4.3 billion in shares and acquired debt.

Linn Energy LLC (Nasdaq: LINE) plans to buy Berry Petroleum Co. (NYSE: BRY) for $4.3 billion in shares and acquired debt.

The transaction, which is structured as a stock-for-stock merger of Berry with LinnCo followed by the acquisition of the Berry assets by Linn, is expected to be tax-free to Berry shareholders. This transaction represents the first-ever acquisition of a public C-Corp by an upstream LLC or MLP.

Linn management thinks Berry's long-life, low-decline, mature assets are an excellent fit for an MLP/LLC and that the deal should give meaningful growth to Linn’s portfolio with increased geographic presence in California, the Permian Basin, East Texas, and the Rockies – and the addition of an attractive new core area in the Uinta Basin.

In addition, the deal will increase Linn’s production by about 240 million cubic feet equivalent (MMcfe) per day, an increase of about 30%. Berry’s reserves are about 75% oil, which results in a meaningful increase in liquids exposure to 54% from its current level of 46%.

The deal will increase proved reserves by about 1.65 trillion cubic feet equivalent, or 34%. Linn has identified additional probable and possible reserves at Berry of about 3.8 Tcfe. Berry also has about 3,200 producing wells and more than 200,000 net acres.

Linn’s management also thinks the transaction is expected to be highly accretive to distributable cash flow per unit. In the first full year following closing, accretion is expected to be in excess of $0.40 per unit.

Linn plans to recommend to its board of directors an increase in the current quarterly distribution of 6.2%. Linn's current quarterly distribution of $0.725 per unit, or $2.90 per year, would increase to $0.77 per unit, or $3.08 per year. The recommended increase is anticipated to take effect in the quarter immediately following the closing of the transaction, which is estimated to occur on or before June 30.

LinnCo's current estimated annual dividend of $2.84 per share includes a reduction of $0.06 per share for taxes, which LinnCo now estimates to be zero for 2013. Therefore, management estimates that the LinnCo dividend per share for the quarter ended March 31, 2013, will increase 2% from $0.71 to $0.725 per quarter, or $2.90 per share on an annual basis.

LinnCo's management intends to recommend to its board an increase in LinnCo's dividend by 8.5% following the closing of the transaction to $3.08 per share on an annualized basis, which includes the $0.18 per share increase in Linn distributions.

Linn said it expected the company’s coverage ratio for the second half of 2013, assuming the transaction closes on or before June 30, to be about 1.20 times earnings including the anticipated distribution and dividend increases.
As part of the transaction, Berry will be converted into a limited liability company and then it will be contributed to Linn in exchange for Linn units. This arrangement allows Linn to own Berry's assets in a pass-through entity without any immediate payment of tax.

"Berry's assets are an excellent fit for LINN, and we believe this transaction generates significant accretion to our distributable cash flow per unit," said Mark E. Ellis, chairman, president and chief executive of Linn Energy.
Robert Heinemann, president and chief executive of Berry Petroleum Co. said, "Today's merger announcement with Linn Energy marks the beginning of a new, important chapter in our company's history.

Berry and Linn have demonstrated the ability to prudently grow their businesses while delivering value and returns to their respective shareholders and unitholders. Berry's portfolio fits well with Linn’s structure and asset base, and the combination of the two companies will create one of the largest independent E&P companies in North America. This transaction consideration delivers substantial value to Berry shareholders with the opportunity to participate in the upside potential of the combined, growing company."

Under the terms of the agreement, which was unanimously approved by the boards of directors of Linn Energy, LinnCo and Berry, LinnCo has agreed to issue 1.25 common shares for each common share of Berry outstanding prior to the merger. The consideration to be received by Berry shareholders is valued at $46.2375 per Berry share based on LinnCo's closing price as of Feb. 20, 2013. This represents a premium of 19.8% to the Berry closing price on Feb. 20, and a premium of 23.1% to its one month average price at that date.

The transaction is expected to close by June 30, 2013. The combined company will be headquartered in Houston, Texas. Latham & Watkins advised Linn Energy and LinnCo in the transaction with a corporate deal team led from the firm’s Houston office

LinnCo is paying about $109,000 per flowing barrel of production per day, according to estimates from Wells Fargo. On a reserve basis, LinnCo is paying $15.64 per barrel of oil equivalent, Wells Fargo estimated. Linn is paying about six times the estimated EBITDA, based on estimates from Wells Fargo.