Mutual funds and institutions own 90% of the float of BRY. They decide on the merger.
The merger deal calls for each BRY share to get 1.25 LNCO shares. The mental block that most people seem to have is that they think that since currently LNCO's share price times 1.25 is less than BRY's share price that the BRY shareholders would not vote for the merger since they would clearly lose money, but they are missing something. LNCO's share price is down due to bear attacks, false bashing, current lack of DCF coverage, and fear that the merger will not succeed. When the merger is approved all of those issues go away. Merger approval instantly fixes all of the problems.
The managers of the mutual funds and institutions that own BRY are well aware that their approval does not get them 1.25 times the current price of LNCO, but rather it gets them 1.25 shares in the merged company without issues. The merged company can afford to pay $3.08 per share to LINE and LNCO shareholders. Multiply that by 1.25 and you get $3.85 per share per year and growing for each BRY share. BRY currently pays 32 cents. Who wouldn't vote yes for a jump from 32 cents to $3.85?
My 2 cents worth...
No BRY shareholder vote will be held until SEC approves the S-4 registration document. (Everyone who really wants to understand what is going on needs to read it on Linn's website.)
The minute it's announced that SEC has approved the registration document, LINE/LNCO will jump in price...perhaps by 10-20% (My opinion. But SEC approval of the S-4 will mean the regulatory path is clear for a merger AND any SEC questions or interests in LINE, Puts, Merger related matters, etc., will have been resolved to SEC satisfaction.)
BRY shareholders, who have seen no real growth in the last two years and only small dividends (currently $.32), will, looking at the impact of the merger, realize $3.85 in annual distributions and the security of these will be high due to the beneficial aspects of the Linn/BRY merger. (The $3.85 is the expected $3.08 times 1.25 shares of LNCO per BRY share.) (No one that I know of so far has seriously contested the matter of the size and security of the future distribution following a merger.) Note also that 91% of BRY shares are held by insiders and institutions. They will very clearly see the value of the $3.85 annual distribution. And, by the way, Analyst estimates for BRY EPS this year are $3.06 and for only $2.95 for 2014. So Berry shareholders are looking at a flat to declining business with lousy dividends if they maintain status quo, i.e., no merger.
As to the market price of LINE and LINCO today or in the next several weeks, I think it has very little to do with the attractiveness of the merger to BRY shareholders. $3.85 in annual distributions ALONE is worth somewhere between $42-45 even if BRY got $0 worth of LNCO shares...In other words, what's $3.85 per year worth going forward? Not to be cute, but if Linn told Berry shareholders that "you get bupkiss but we'll give you $3.85 per share in distributions over the next several years and these will be pretty secure", BRY shareholders should go for it.
Great post..................Until the last few sentences. You are DELUSIONAL if you think that any institutional holder would accept "bupkiss" in return for zero value + the promise of future dividends of any size. You can't POSSIBLY, SERIOUSLY believe that. Face reality, people!
Sentiment: Strong Buy
Yes, this is my message. The $3,85 dividend will also be growing for years to come. The institutional investors know this and will vote for the merger. I have no doubt. Anyone who argues against me on this is either incapable of understanding or has a vested interest in seeing LINE or LNCO drop in price.
The October time frame can be extended to Jan 14 under certain instances.I would think the SEC pending approval or denial of the registration statement would qualify as such an event
It is a nice theory, but is not likely to happen. Bry is committed to hold a shareholder vote on the matter if Linn can get SEC approval prior the the expiration of Bry's commitment. With the share price where it is, the Bry shareholders are not likely to approve the deal assuming SEC approval is obtained in time. Once the bry commitment expires, or a negative shareholder vote is obtained. Bry will either renegotiate the deal, or find another acquirer. Linn needs to focus on getting their share price up before October. To do that, they need to do better than the 820 mmcfe/day they are promising. So far, they say they did 815 in July but did not say if this included or excluded ethane rejection. They also need to present a business plan that shows how they intend to grow the business they have so that it will sustain the current dividend and hopefully grow it modestly over time without acquisitions. So far, I am not convinced they will do either in time. IMHO
PS The only way drilling fewer wells will increase dcf as defined by Linn is if fewer wells are needed to maintain current production levels. The only way this happens is if they get more production from the wells they drill to maintain production. This is because dcf is reduced by maintenance capital. Dcf is unaffected by reducing wells drilled for growth. For the last three quarters, they have been understating maintenance capital because the production they have obtained from drilling these wells have not allowed them to maintain production. They have needed all the wells they have drilled maintenance plus growth just to maintain production. So if they drill fewer wells not only will DCF not be increased, but given their current track record, it will decline.
I follow your logic and hope they see the value of the merger and not just the bear attacks on LINN when they make their decision.
There is some concern that BRY may not have the opportunity to decide given the SEC inquiry and possible delays or denials.
Looks like October will be a milestone as BRY will not face penalties for backing out after that date.
The SEC is doing an informal inquiry. It will not be an issue. It is pretty much due diligence. I promise you that.
Absolutely the institutional investors know what they are doing here and are for the merger. They are not falling for the short's lies.
Would suspect if it gets to October, I suspect Berry will back out, or at least demand a higher ratio. Linn will have to play along with Berry. In essence, the deal will be less accretive, but Linn knows that even giving 1.4 LNCO shares for each BRY share is worth it because it will get them back to 1.0x coverage, even if they can't meet the $3.08 due to giving up more shares in the merger.