Updated from 2:23 p.m. ET to reflect closing share prices and additional information throughout. NEW YORK ( TheStreet) -- Leon Cooperman of Omega Advisors said on CNBC the $8.4 billion hedge fund has done its homework on Linn Energy ( LINE) and remains an investor in the embattled oil and gas driller. In a midday Wednesday CNBC interview, the hedge fund investor also referenced a positive conversation with management of Berry Petroleum ( BRY) about the firm's proposed stock merger with Linn Energy. Cooperman said he spoke with Berry's chief executive Martin H. Young and that the company remains committed to its merger with Linn Energy. Omega Advisors isn't concerned with how Linn Energy accounts for a hedging program the firm has in place to reduce its exposure to volatile energy prices, Cooperman said. The former Goldman Sachs Asset Management head estimates Linn Energy's net asset value (NAV) at about $40 a share, well in excess of the company's current price. Cooperman further explained in the CNBC interview Omega Advisors is a ready investor in energy master limited partnerships (MLP's) that are trading at a discount to their NAV's and have the earnings to support dividend payouts or other returns of capital to investors. Omega Advisors, Cooperman said, wouldn't invest in MLP's with an unsustainable dividend or those that trade at a premium to their NAV's. "We have done our homework," Cooperman said of Omega's investment in Linn Energy. He also referenced similar Omega investments such as Atlas Energy ( ATLS) and Atlas Pipeline Partners ( APL). Houston-based Linn Energy has recently come under scrutiny from Barron's and independent investment research firm Hedgeye Risk Management for the sustainability of its high dividend yield and accounting practices related to its energy hedging activities. Both Barron's and Hedgeye question Linn Energy's ability to fund its current dividend, and consequently, the company's share price. Linn's stock valuation and the strength of its financial position are of big importance as the company works to close an all-stock transaction involving LinnCo ( LNCO), a subsidiary set up to purchase the firm's shares, and Denver-based Berry Petroleum ( BRY). Were that merger to be completed, Linn Energy says it will be able to increase its annual dividend to $3.08 a share, or a yield of about 9% at current share prices. On Tuesday morning, Hedgeye Risk Management hosted a conference call to detail its analysis of why Linn Energy's dividend may be hard to support and its shares are overvalued. Shares in Linn Energy, however, reversed early Tuesday share price losses when TheStreet first reported Cooperman's continued support of the company as its leading outside shareholder. Linn Energy shares continued gains on Wednesday and were up over 4% to $32.98 on the heels of Cooperman's televised comments to CNBC. From Tuesday lows to current prices, Linn Energy shares have gained over 10%. LinnCo shares rose over 5% to $36.75 in Wednesday trading, while Berry shares were up over 2% to $43.34. Omega Advisors is Linn Energy's largest outside investor, with a 3.05% holding in the company's shares worth more than $200 million, according to March 31 Securities and Exchange Commission filings compiled by Bloomberg. Linn Energy is also Omega's fifth-largest investment, after stakes in Sprint Nextel ( S), AIG ( AIG), SLM Corp. ( SLM) and SiriusXM Radio Nextel ( SIRI), the data showed. Jim Cramer, founder of TheStreet and contributor to Real Money Pro, currently owns Linn Energy shares in his Action Alerts PLUS charitable trust, along with Co-Portfolio Manager Stephanie Link. Cramer has supported Linn Energy and invited CEO Mark E. Ellis on his CNBC show Mad Money to rebut Barron's analysis.
In a June 17 letter, Cooperman wrote "Omega Advisors, Inc. is comfortable with our investment in Linn Energy, we are convinced of the professionalism and integrity of the company's management, we are optimistic about the company's future growth and financial performance." He further pointed out that Linn Energy has mostly hedged its energy production with costless swap contracts, potentially undermining claims that the company is under-reporting costs it incurs to hedge its energy risk. Cooperman argued Linn Energy has capitalized the costs of its energy hedges in accordance with Generally Accepted Accounting Practices (GAAP). Non-GAAP metrics such as earnings before interest, taxes, depreciation and amortization (EBITDA) that are often cited by Linn Energy and investors, by definition, would not include the capital expense of put contracts, Cooperman's letter stated. Finally, Cooperman highlighted that independent third parties Citigroup and Credit Suisse have valued LinnCo, the subsidiary in the Berry merger, at $35.92 a share and $39.64 a share. Those valuations remain well above Linn Energy's current share price and, according to Cooperman, take into account any tax liability the company would face in its proposed acquisition. Barron's and Hedgeye, however, argued the company's shares could only be worth between $5.48 a share and $18.17 a share. "
We are of the view that the shares are undervalued and offer an attractive total return proposition -- dividend plus change in capital," Cooperman wrote in an e-mailed statement to TheStreet Tuesday. Voicemails left with Berry Petroleum weren't immediately returned. -- Written by Antoine Gara in New York Follow @antoinegara