Updated from 12:43 p.m. ET to include closing share prices and additional data throughout.
NEW YORK ( TheStreet) -- Linn Energy (LINE - Get Report) said late on Monday the Securities and Exchange Commission has opened an informal inquiry into its financial disclosures and the driller's pending merger with Berry Petroleum (BRY).
The Houston-based company said in a statement it has voluntarily agreed to disclose information to the SEC's informal review and that the regulator has requested the preservation of documents and communications relevant to the company's proposed merger with Berry Petroleum, its use of non-GAAP financial measures relayed to investors and its hedging strategies.
Linn, however, said it remains confident it will complete its merger with Berry and that the informal inquiry shouldn't be seen as a negative stance by the SEC of its business."The SEC has stated that the fact of the inquiry should not be construed as an indication that the SEC or its staff has a negative view of any entity, individual or security," the company said in a statement. "Although the impact of the inquiry on the timing of LinnCo's proposed merger with Berry Petroleum Company is difficult to predict, LinnCo and LINN remain committed to the completion of the transaction." LINN and LinnCo, a unit the company is using to acquire Berry, are cooperating fully with the SEC, both companies said. On Monday, Linn Energy and LinnCo maintained their high dividend yields by announcing monthly cash distributions of $0.2416 per share, or $2.90 on an annualized basis. The distribution will be payable to shareholders of record as of the close of business on July 10. "While we remain confident in LINN's overall financial health and the soundness of its financial statements, we cannot ignore the uncertainty that the SEC inquiry has brought to the partnership's near-term outlook," Kevin Smith, a Raymond James analyst wrote in a Tuesday downgrade of the company. The analyst said the inquiry could delay the Berry deal by at least 30 days, however, Linn's business model and outlook "remain sound." Linn Energy shares closed down nearly 19% to $27.05 in Tuesday trading. LinnCo shares fell nearly 17% to $30.90, while Berry Petroleum shares fell nearly 6% to $39.86. Berry's proposed merger comes amid scrutiny from major financial media and independent research firms into earnings and cash flow of Linn Energy. Questions about the ability of Linn Energy to fund its large dividend and its accounting practices on derivative hedges have caused significant volatility in the company's shares and its all-stock exchange with Berry. The SEC's informal review, while not a confirmation of concerns about Linn's accounting, likely creates a new challenge for the oil and gas driller. A handful of analysts downgraded their ratings and price targets for Linn Energy given the uncertainty of the review, however, few expressed concern over the company's long-term earnings or strategy. In late June, Sterne Agee analyst Tim Rezvan said Berry Petroleum was fairly valued at $44 a share in the company's anticipated stock merger with Linn. In the wake of the SEC's informal review Rezvan wrote Tuesday, "we see 15% upside in