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Berry Shares Fairly Valued for Linn Merger: Sterne Agee

Tickers in this article: APL ATLS BRY LINE LNCO

NEW YORK ( TheStreet) -- Berry Petroleum shares are fairly valued at $44 a share in the company's anticipated stock merger with Linn Energy , according to Sterne Agee analyst Tim Rezvan.

Berry's proposed merger comes amid scrutiny from major financial media and independent research firms into the financial health 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.

Rezvan of Sterne Agee says the media scrutiny has created bumps in Linn and Berry's road to a merger, however, those issues aren't likely to nix the deal altogether. The analyst indicated recent analysis from Barron's and Hedgeye Risk Management put a spotlight on derivative accounting practices at Linn Energy that the investment community had already brought to light.

"We continue to believe shareholders will vote for the deal and it should close in the third quarter," Rezvan wrote in a June 20 note to clients. The analyst values Berry Petroleum at $44 a share in a completed merger, however, he cautions that shares could fall to the mid-$30's if a merger deal were to be broken.

"A haircut would be needed on a deal break as management re-engages itself, which could pressure shares to the mid-$30s as merger arb players exit the stock," Rezvan noted.

Leon Cooperman of Omega Advisors said on CNBC Wednesday the hedge fund has received positive feedback from Berry Petroleum on its merger with Linn Energy.

Cooperman said in the interview the $8.4 billion hedge fund has also done its homework on Linn Energy and remains an investor in the embattled oil and gas driller.

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 , AIG , SLM Corp. and SiriusXM Radio Nextel , the data showed.

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 on Wednesday. "We have done our homework," Cooperman said of Omega's investment in Linn Energy. He also referenced similar Omega investments such as Atlas Energy and Atlas Pipeline Partners .

Houston-based Linn Energy has seen its shares fluctuate sharply as 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, a subsidiary set up to purchase the firm's shares, and Denver-based Berry Petroleum .