(Updates with closing share prices in eighth paragraph.)
Feb. 21 (Bloomberg) -- Linn Energy LLC, which buys older oil and natural gas fields, agreed to purchase Berry Petroleum Co. for $2.42 billion in stock to increase its proved reserves by 34 percent.
Berry shareholders will get 1.25 shares of publicly traded LinnCo LLC, a corporation whose only assets are units of Linn Energy, according to a joint statement released today. That values Berry at $46.24 a share, a 20 percent premium to yesterday’s closing price. LinnCo will sell the Berry assets to Linn Energy in exchange for additional partnership units.
Berry’s reserves are 75 percent oil, which increases Linn’s exposure to liquids, which are more profitable than natural gas. The deal is the biggest oil and gas purchase announced this year and the largest ever for Linn, according to data compiled by Bloomberg. Last year, the company announced four deals, valued at a total of $2.6 billion.
The “deal makes sense given Berry’s portfolio,” Tudor Pickering Holt & Co. analysts wrote today in a note to clients. The acquisition adds long-lived assets with slow decline rates, including fields in California, to Linn’s holdings, the note said. Tudor Pickering rates Berry shares at a hold.
Linn, the first publicly traded independent oil and natural gas limited liability company, was formed in 2003 by Michael C. Linn and private-equity firm Quantum Energy Partners.
Linn Energy, which has a tax-advantaged structure similar to a master-limited partnership, created LinnCo in an initial public offering Oct. 12. LinnCo is a corporation, a structure that allows Linn to attract capital from pension funds and other investors who might shy away from a partnership.
Linn will pay $4.3 billion for Berry, including the assumption of debt, the Houston-based company said.
Berry climbed 19 percent to $46.02 at the close in New York. Linn Energy increased 2.8 percent to $37.68. LinnCo rose 5.4 percent to $39.
Citigroup Inc. acted as LinnCo’s financial adviser. Credit Suisse Group AG advised Berry.
Latham & Watkins LLP acted as Linn and LinnCo’s legal adviser. Akin Gump Strauss Hauer & Feld LLP acted as a legal adviser to the conflicts committee of Linn’s board. Locke Lord LLP acted as legal adviser to the conflicts committee of the LinnCo board. Wachtell, Lipton, Rosen & Katz acted as Berry’s legal adviser.
Greenhill & Co. Inc. provided a fairness opinion to the conflicts committee of Linn’s board. Evercore Partners provided a fairness opinion to the conflicts committee of the LinnCo board.
The deal includes a $83.7 million termination fee, according to a filing from Berry today.
--With assistance from Bradley Olson in Houston. Editors: Jessica Resnick-Ault, Steven Frank