The Deal: SEC Approval of Proxy in Berry Deal Delayed

Tickers in this article: BRY LINE LNCO

NEW YORK (The Deal) -- Linn Energy and affiliate LinnCo with Berry Petroleum announced on Wednesday, Sept. 11, that regulators asked for clarification on the registration statement for the $2.2 billion merger of Berry with Linnco, raising the question of whether the exchange ratio for the deal will be reworked.

In a somewhat unusual announcement, the companies said the Securities and Exchange Commission delivered comments on the S4 for the stock swap deal. The companies said they are working diligently to amend and refile the document. Record date for the votes of Berry, LinnCo and Linn Energy are set for Sept. 30, which suggests the companies think the document could be cleared by early October.

The announcement itself reflects the decline in LinnCo and Linn shares since an SEC inquiry into Linn's accounting practices in early July and suggests Berry is monitoring how the buyers' shares will trade leading up to the merger vote.

Denver-based Berry entered a stock swap in February with oil and gas developer Linn that exchanges 1.25 shares of its affiliate LinnCo for each share of Berry. Berry is an oil and gas exploration and development company with assets from California to Texas. LinnCo is a limited partnership holding unit of Linn Energy. The SEC inquiry out of Fort Worth, Texas, is reviewing Linn's accounting for its hedging practices and maintenance capital expenditures.

The SEC comments and the companies' announcement suggest that the inquiry has not revealed any significant accounting issues. But companies do not typically announce receiving comments from the SEC about a filing, which is a customary part of the document review process.

But when the SEC investigation was announced, Linn Energy shares dropped from about $33 to $23 and LinnCo fell from roughly $37 to $27, but gained 10% to $32 on the announcement that the SEC made comments on the S4.

Berry shares have traded well in excess of their proposed deal value and remained at $43.90, up 2%, for the day.

The reason for the announcement seems to be to revive LinnCo shares as best as possible while the proxy is still under review, otherwise Linn may have to adjust the ratio to satisfy Berry shareholders.

Neither Berry nor Linn returned calls.

Written by By Scott Stuart