Linn Energy to Buy Berry Petroleum for $2.5 Billion

Deal making in the oil patch continued on Thursday, as Linn Energy agreed to buy Berry Petroleum for about $2.5 billion, expanding its presence in oil-rich shale formations.

Under the terms of the deal, an affiliate of Linn, LinnCo LLC, will issue 1.25 million new common shares for each Berry share. That amounts to $46.24 a share, a roughly 20 percent premium to the target’s closing price on Wednesday.

LinnCo will then transfer Berry’s assets to Linn in exchange for additional ownership units in its sibling, which is structured as a master limited partnership. Including the assumption of debt, the deal is valued at $4.3 billion.

By purchasing Berry, Linn will significantly blster its oil production and increase its holdings in California and the Permian Basin in western Texas. The company estimates that its newest acquisition will increase its proved reserves by 34 percent and its production capabilities by 30 percent. And Berry’s reserves are estimated to be about 75 percent oil and liquids, considered to be significantly more valuable than natural gas given current prices.

Linn cited the growth promised by the deal in announcing an increase in its quarterly distributions to unitholders, to 77 cents a unit from 72.5 cents a unit.

“Berry’s assets are an excellent fit for Linn, and we believe this transaction generates significant accretion to our distributable cash flow per unit,” Mark Ellis, Linn’s chief executive, said in a statement. “We have great respect for what the Berry management team has accomplished and consider the Berry employees to be an important part of this transaction.”

To help defray the tax hit that LinnCo will take on! through the deal, Linn will pay its affiliate $6 million a year through 2015.

LinnCo was advised by Citigroup, while a conflicts committee of its board was advised by Evercore Partners and the law firm Locke Lord. A conflicts committee of Linn’s board was advised by Greenhill & Comany and Akin Gump Strauss Hauer & Feld.

Latham & Watkins served as legal counsel to both Linn and LinnCo. Berry was advised by Credit Suisse and the law firm Wachtell, Lipton, Rosen & Katz.