Bret Jensen observes:
Four reasons LINE belongs in your income portfolio at $38 a share:
It just bought Berry Petroleum (BRY) for a 20% premium. This made me happy as I am a Berry shareholder as well as holding LINE. This is a good strategic acquisition for Linn Energy and one Tudor Pickering is positive on and Jim Cramer has called a "brilliant acquisition" on CNBC this morning.
The stock yields 8.1% and the company has grown dividend payouts at an approximate 4% annual rate over the past five years.
The company increases revenues by more than 50% in FY2012. Analysts also expected over 40% sales gains in FY2013, and this was prior to the Berry acquisition.
LINE is selling near the bottom of its five-year valuation range based on P/S and P/E.
LINE is a partnership. You have to report a K1 on your income tax. Almost all the distribution is return of capital until your basis is used up.
LNCO is a corporate format. As most of the dividend is ROC until your basis is used up there is minor tax amounts like 1% deducted for weird ATM stuff.
There is a very good presentation on the IR page which explains it in depth. Best to read first hand.
And, it looks like Mr. Amoss of Weil updated his thoughts on 2/22/13
From his post at Weil:
"LINN Energy $37.68 (SP) / LinnCo $39.00 (SP): Takeaways from Berry Transaction Announcement / David Amoss (504) 582-2638
Quick Take: After yesterday’s earnings release and announcement that LINE has purchased BRY in an all-stock transaction, we are reviewing our thoughts on the deal and what is next for LINE. First and foremost, we think BRY’s assets are a good fit with LINE’s existing portfolio, bringing in the three-legged stool of the Permian, Uinta, and California.
BRY Assets: In our opinion, the Permian is most interesting as horizontal exploration is ongoing all around LINE’s core Midland Basin properties, where BRY brings an additional 61,000 net acres. With continued horizontal success, this asset could be monetized down the road to further improve the balance sheet or provide a home for more of LINE’s growth rigs. It sounds like the Uinta will also be an early target on the growth side, where ~25% of BRY’s total production is emanating from. The waxy crude from the Basin could become a bigger priority for West Coast refiners, and we would not be surprised to see rail capacity grow to support the transport leg, potentially giving LINE access to better pricing. In California, LINE is acquiring a heavy oil cash flow printing press with BRY’s shallow decline production having been a significant beneficiary of the regions narrowed differentials. Midway-Sunset is the crown jewel of the package in our opinion, currently producing ~13 MBopd with a shallow decline under 10%. The Diatomite is the growth asset in the California package, and it is yet to be seen how much LINE will choose to spend there. An additional benefit is that BRY’s steam floods consume a large percentage of the Company’s gas production, so lower gas prices further improve margins which acts as a natural hedge. All in all, a solid proved asset base to bolt on, although the ~35% of EBITDA for maintenance CAPEX is slightly higher than we were previously modeling.
What’s Next?: We have no doubt that LINE will look to get back into the corporate M&A game as quickly as possible, but with the integration of BRY looming, we think the Company could choose to focus on asset deals in the near-term. Once BRY is integrated, LINE could look for an even bigger corporate transaction in the $5 billion to $10 billion range, with a couple of obvious targets in the Mid Cap E&P space. "
Which leaves me to wonder specifically who he is thinking of when he said this:
"with a couple of obvious targets in the Mid Cap E&P space"
My first thought was Whiting.....but I am curious about who else?
Ah the cover of the equity deal. He basically claimed management was systematically buying in the money puts to artificially inflate DFC in addition to the sunk DCF of capitalizing strip price puts.
Now suddenly all is well. Yea right. ;-)