Even with the distribution boost, LINN’s distribution coverage ratio will improve from the 1.07 times it was at the end of the fourth quarter of 2012 to 1.2 times when the deal closes and the increase goes into effect. It expects that ratio will improve further in 2014 and 2015 likely leading to future distribution increases. A final change that is still in the works has management looking into adjusting the frequency of its distributions from quarterly to monthly.
How it affects the future of LINN Energy and LinnCo
The deal for Berry Petroleum is a game-changing deal for the energy industry and for LINN Energy. Not only was it a bold move, and another first for the company, but it improved all the metrics that mattered most with one stroke of the pen. Now, with LinnCo as a viable acquisition currency, LINN can continue its hunt for more accretive deals.
Management, which said on the conference call that it will pursue more deals of a similar structure in the future, doesn’t appear to be done shopping. LinnCo really adds to the firepower it already had by using LINN Energy equity and debt to buy assets directly from an exploration and production company. Now LINN can pursue the structure that will make the most sense by looking at transactions that accrete the most cents to its distribution.
Foolish bottom line
It’s an exciting day for LINN and LinnCo investors. The company emerges from this deal with stronger, more diverse operations as well as a greater focus on liquids. Even better, LINN significantly improved its financial metrics by improving its debt profile and distribution coverage ratio. When you add it all up, LINN really hit it out of the park with this deal.
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The article What’s the Deal With LINN Energy’s Acquisition of Berry Petroleum? originally appeared on Fool.com and is written by Matt DiLallo.
Fool contributor Matt DiLallo owns shares of LINN Energy, LLC and LinnCo, LLC. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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