Berry Says Either Side Can Exit Linn Takeover Next Week

Berry Petroleum Co. said its $2.12 billion takeover by LinnCo LLC, the subject of an inquiry by the U.S. Securities and Exchange Commission, won’t be done by Oct. 31, after which either party can walk away from the transaction.

“There can be no assurances as to whether the parties will agree to extend the end date or that the parties will refrain from exercising their rights to terminate the merger agreement,” the Denver-based oil and natural gas producer said in an SEC filing today. LinnCo, whose only asset is stock in Linn Energy LLC, didn’t immediately respond to a voicemail seeking comment.

LinnCo agreed in February to purchase Berry for $2.42 billion in stock to increase its oil reserves and boost payments to unitholders. The value of the transaction has fallen as LinnCo’s stock price dropped. In July, the SEC told the company it had begun a “non-public inquiry” and was seeking documents related to the transaction as well as hedging strategies and certain financial measures of Linn and LinnCo. The company has submitted five amended S-4 filings to the commission seeking approval.

“Both sides are trying to prepare for the worst,” Jason Wangler, an equity analyst at Wunderlich Securities Inc., said in a phone interview. “If a week from now we’re in the same boat as we are today with so much uncertainty, maybe they do walk away from the deal.”

If the acquisition falls through, it could be positive for Berry, Wangler said. “They have a lot of good assets that have gained a lot of value this year but the stock price hasn’t necessarily moved up with that just because they’ve been in a transaction. Maybe becoming a standalone again we’ll see people circle back and see what they have.”

Hedgeye Risk Management LLC, an independent research company, said in a June presentation that Houston-based Linn was not accounting for the full cost of put options and capital expenses such as drilling.

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