Investments on the LINE

NEW YORK ( TheStreet) -- What an exciting time it is to be a shareholder of Linn Energy ( LINE) or its kissing cousin Linn Co. ( LNCO).

The only shareholders you'd think would be more excited are those of independent energy company Berry Petroleum ( BRY). That because on Thursday LINE offered to buy BRY for $2.42 billion in stock to increase its proven reserves by 34%. Shares of BRY surged 19% on the news and were up another 2% on very heavy volume Friday, closing at $46.95.

LINE moved up 2.8% on Thursday and another 2.14% on Friday, ending the week at $38.49. LNCO surged over 5% on Thursday's announcement and moved another 0.69% higher on Friday, closing at $39.27, not far away from its 52-week high of $40.40.

According to a Bloomberg report Thursday, Berry shareholders will get 1.25 shares of publicly traded LNCO, "...a corporation whose only assets are units of Linn Energy, according to a joint statement released Thursday . That values Berry at $46.24 a share, a 20% premium to Wednesday's closing price. LinnCo will sell the Berry assets to Linn Energy in exchange for additional partnership units."

As of Dec. 31, 2011, BRY had working interests in 2,867 net productive oil wells and 282 net productive natural gas wells, and proved undeveloped reserves of 130.1 million barrels of oil equivalent. It sells its crude oil and gas to marketing companies or refiners. The company is also involved in the generation and sale of electricity to public utilities. Berry Petroleum was founded in 1909 and is headquartered in Denver.

LINE's all-stock transaction has been beneficial to its credit ratings but still caused BRY's stock to be put under review by Moody's Investors Service. Just before the market's close on Friday, Moody's affirmed its B1 corporate family rating for Linn Energy and apparently downgraded the outlook for the oil and gas company to developing from negative due to its plans to buy BRY.

According to an Associated Press report, "The ratings service said its revised outlook for Linn reflects the benefit of the addition of Berry's size, scale and low-decline, liquids-focused assets. But it added that Linn's aggressive pace of acquisitions boosts the risks related to the company."

Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust -- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.

Now the 2.42-billion-dollar question is how the shareholders of LINE and BRY will react to all these developments. A press release Friday stated that a Wayne, Pa., law firm is investigating potential claims against the board of directors of Berry Petroleum. The press release states the investigation concerns "...possible breaches of fiduciary duty and other violations of law related to the company's BRY efforts to sell the company to Linn Energy, LLC and Linn Co, LLC in a transaction valued at approximately $4.3 billion."

The press release doesn't explain where they come up with the figure of $4.3 billion. It concludes by saying, "Our investigation concerns possible breaches of fiduciary duty and other violations of law related to the approval of the transaction by the company's board of directors; in particular, whether the company undertook a fair process to obtain fair consideration for all shareholders of Berry Petroleum."

For more information regarding the investigation you can contact Ryan & Maniskas, LLP (Richard A. Maniskas, Esquire) toll-free at (877) 316-3218 or by email at rmaniskas@rmclasslaw.com. All I know about this firm is Ryan & Maniskas, LLP is a national shareholder litigation firm.

Fundamentally, this deal looks very good for the future dividends of LINE and LNCO. If the deal goes through they'll be buying a company BRY that in the trailing 12 months generated over $955 million in revenue. BRY steps into the earnings confessional on Thursday and the earnings conference call should be the highlight of the day.

Analysts' consensus estimate for EPS is that BRY will report around 7 cents per share in the latest quarter. This is only one cent higher than the year-ago quarter. Sales growth and revenue estimates for the fourth quarter of 2012 are around $253 million, which would equal a shining 11% increase over the same quarter in 2011.

Let's see a five-year chart of BRY's share price and quarterly per share revenue.

BRY Chart BRY data by YCharts

No wonder the smart folks at LINE want to own this company, although BRY has had a fairly hefty debt load that, as of the previous quarter, was $1.61 billion. Hopefully the upcoming earnings results will discuss this aspect of BRY's balance sheet.

LINE's price chart and quarterly per share revenue over the past five years lines up a little less symmetrically than BRY's. That doesn't necessarily bother this analyst because as of the last reportable quarter LINE's year-over-year quarterly revenue had increased by nearly 56%!

LINE Chart LINE data by YCharts

All that being said, I have a confession to make and it shouldn't surprise most readers. On Friday afternoon I sold my shares of LINE for a nifty profit. Then I immediately entered a good-until-cancelled order to buy them back plus a few extra if the share price drops below $36.

This is my version of "sell the news and buy the rumor" or "sell the news and buy the impending lawsuits." I obviously like LINE and its super-generous dividend policies (current yield-to-price of 7.53%), and I like LNCO as well.

Yet, I agree with Jim Cramer, who wrote in his "Real Money" editorial on the current levels of the stock market averages, that the "'buy on pullbacks' call that so many made was, and is, again met by 'we need a bigger pullback.' I like that, too."

If you want to own some or more shares of LINE and LNCO you may want to look for a "bigger pullback" that just may bring the shares prices down to a more reasonable buying level.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Make smarter trading decisions and provide investment ideas that could help make you richer. Bryan Ashenberg does the dirty work so you don't have to!

If you liked this article you might like

The 10 Most Interesting, Troubling and Adorable Things Found in Snapchat's IPO Filing

The 10 Most Interesting, Troubling and Adorable Things Found in Snapchat's IPO Filing

Alibaba Plans to Win Over Southeast Asia Through More Than Just Acquisitions

Alibaba Plans to Win Over Southeast Asia Through More Than Just Acquisitions

Alibaba Targets Thailand With Latest International Expansion Push

Alibaba Targets Thailand With Latest International Expansion Push

Vanguard Natural Resources' Credit Review Breathes New Life Into The MLP

Vanguard Natural Resources' Credit Review Breathes New Life Into The MLP

Oil Companies Can Be Good, Bad or Ugly -- Even as Oil Recovers

Oil Companies Can Be Good, Bad or Ugly -- Even as Oil Recovers