What happened to Linn Energy stock this week is very simple. Linn owns mature oil and gas resources. Over time, these resources produce less. To maintain or grow over time, Linn must gradually acquire new mature assets. If the acquisition process can be disrupted over an extended period of time, Linn would eventually lose significant value and go out of business. I think this exposes a weakness in Linn's business model - outsiders can attempt to intervene and disrupt their normal business process (maintenance / growth through acquisition) and intentionally cause the business to suffer. Perhaps if Linn proves themselves enough times such efforts would stop. But, knowing the nature of the world, I would imagine not, unless some other way is found to counter their actions.
To put it simply, the Barron's article appears to be attempting to disrupt Linn's acquisition processes, specifically in this case the acquisition of Berry Petroleum. Then, as the company suffers, the short positions already held by these people gain value. Simple manipulation. You can see it plainly in their arguments - Linn cannot maintain its distribution with declining production. So, if you are short and want this to continue, what is the best way to ensure continued declining production? Prevent more acquisitions. It's not that they do not understand Linn's business model - they DO and they believe they found a weakness. And, they are exploiting it by distorting the truth.
There is nothing to call these actions except evil. Evil is a destructive and distorting force, and that is what is appears to be occurring here - an attempt at distortion and (eventual) destruction. Think of the consequences of Linn Energy's (or any company's) demise. Thousand of stockholders lose money. Employees lose their jobs. All so a few people can make a lot of money. Stocks were meant to be held long. While shorting is amoral, the actions behind shorting are not always amoral. So call a spade a spade.
It's greed, but I wouldn't go so far as to call it evil, it's just . . . capitalism, on the edge of the rules. If that sort of conduct isn't wanted, you could always make a law outlawing it. But you can't make a law to eliminate evil.
Anyway, yeah, the shorts wanted to disrupt the Berry deal, apparently they have failed. But it's not systematic, this game is probably over, it will shift elsewhere. For one thing a long-term attack on LINE would be too expensive due to the high distributions.
First, Nivek, that's a very well written post in an arena where even incoherence doesn't seem to be frowned upon.
But I think you're ignoring Linn's huge line of credit, which has served the company well in the past re acquisitions. Linn also has huge reserves and considerable production, so it's not about to go out of business. A worst case scenario would be Linn having to lower its distribution, and I don't see that happening. The hedges are strong and legitimate, and liquids production is smartly picking up.
I do believe that the shorts are on the cusp of getting jammed up. They've pretty much expended their inventory of argumentative ammunition. (Hedgeye's Tuesday presentation was simply repetition and had the impact on LINE of a fluttery expulsion of gas.) My guess is that their only recourse will be to extricate themselves by closing positions with buy orders. And I bet some of that is happening now. Look who they're up against: Raymond James, Leon Cooperman and Omega Advisors, Howard Weil (that gem of consistency), Wells Fargo, a riled-up Jim Cramer and his large audience,etc. The shorts are clearly outgunned.
But what about Berry? Have they poisoned that well? Berry is more than 80% held by institutions. These folks are more sophisticated than most individual investors and certainly know what's up.They won't be suckered into voting "No" on the takeover, as I doubt that they want BRY to decline by 8 to10 points from where the PPS is now. Moreover, about half of individuals' holdings (about 16% of the total outstanding) are insiders' shares. They aren't "No' votes either.
I think that the longs in Linn Energy have little to worry about.
Finally, your use of the word "evil" is a tad overwrought in light of the real evil the world presents and has presented. I believe that "unethical" is more applicable to Hedgeye's attack.
nahh too much conspiracy in that theory. Its a simply shorts attacking. Right now I can think of at least TWO significant short arbitrage trades playing out now. short LNCO long LINE pair and short LNCO long BRY.
Short nonsense....and lots of it, with message histories of one post
nivek7771 post | Last Activity: 1 minute 44 seconds ago Member since: May 7, 2013
Like maybe just hoping that readers here are all as dumb as most of the bashers with all the new names....and all their visiting buddies, and that no one checks message history?
You are pretty much wasting just your time.
Some posters here have heard all the conference calls, presentations, info on their oilfields....and lots more.
But it is kinda funny to watch all this new flurry of meaningless chatter.
I don't know who you are, sandonthebeach47, or how much if any of linn you actually own, but you are uncontestably the most overbearing single individual I've ever come into cyber-contact with. It must be hard being you.