Linn Energy falls as it discloses SEC probe
NEW YORK (AP) — Shares of Linn Energy fell to multi-year low on Tuesday as the oil and gas company announced it is being investigated by the Securities and Exchange Commission.
THE SPARK: Linn Energy said late Monday that the SEC has started a private inquiry and asked it to save documents and communications that may be relevant to LinnCo LLC's proposed acquisition of Berry Petroleum Corp. as well as Linn Energy and LinnCo's use of adjusted financial measures and a hedging strategy.
Linn Energy announced in February that it planned to buy Berry, a drilling company, for stock worth about $2.5 billion. The company's put the deal's value at $4.3 billion, including debt.
Both Linn Energy and LinnCo say that they are fully cooperating with the SEC. The companies also said they are still committed to the completion of the Berry Petroleum deal.
THE ANALYSIS: Raymond James' Kevin Smith lowered Linn Energy's rating to "Outperform" from "Strong Buy" and reduced its price target to $40 from $44. In a client note, the analyst said that the SEC inquiry could delay the closing of the Berry Petroleum acquisition by at least 30 days. But the analyst said he's still confident in Linn Energy's overall financial health and the soundness of its financial statements.
Tim Rezvan of Sterne, Agee & Leach said that the announcement of the SEC investigation could be a cause for concern for Berry Petroleum. The analyst said that the best-case scenario is that the SEC closes its investigation and Linn completes the acquisition on schedule this quarter. The worst-case scenario is that the private inquiry by the SEC becomes a formal investigation, or the SEC's findings compel Berry shareholders to vote against the acquisition and it remains a stand-alone company.
Rezvan kept a "Neutral" rating due to the balance in potential outcomes for the inquiry.
A representative for Linn Energy did not immediately respond to an email seeking comment.
SHARE ACTION: Linn Energy LLC's stock dropped $5, or 15 percent, to $28.29 in afternoon trading. The stock declined to $28.01 earlier in the session, its lowest point since July 2010.