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(Reuters) - Oil and gas producer Linn Energy LLC LINE.O will buy Berry Petroleum Co BRY.N for $2.5 billion in stock, boosting its reserves of lucrative oil and raising total output by about a third.
Berry shareholders will receive 1.25 shares of LinnCo LLC LNCO.O, a company set up by Linn to raise money for acquisitions and other purposes. LinnCo, which went public in October, only owns Linn units and has no assets or operations.
Berry shareholders will get an equivalent of $46.24 per share based on LinnCo stock's closing price of $36.99 on Wednesday. This is a 19.8 percent premium to Berry's closing price of $38.59.
Berry had 54.15 million shares outstanding as of October 26. The deal is valued at $4.3 billion including debt, the companies said.
Berry shares rose 14 percent in premarket trade.
Linn's offer is higher than Berry's intrinsic value of $44.06 as measured by Thomson Reuters StarMine.
The StarMine model is a measure of a stock's current value when considering analysts' growth estimates for five years, and then modeling the typical growth trajectory over a longer period of time.
The acquisition will increase Linn's footprint in California, Texas's Permian Basin, besides adding acreage in Utah's Uinta Basin.
The addition of properties will bring in about 240 million cubic feet equivalent per day (mmcfe/d) of production, raising Houston-based Linn's output by 30 percent.
Denver, Colarado-based Berry's reserves are about 75 percent oil, which will increase Linn's liquids exposure to 54 percent from about 46 percent as of December 31.
As part of the deal, Berry will be converted into a limited liability company and then moved to Linn in exchange for units, allowing Linn to own the acquired assets without any immediate payment of tax.
The transaction is expected to add more than 40 cents per unit in the first full year following closing, expected by June 30.
Citigroup Global Market advised LinnCo, while Latham & Watkins LLP was the legal adviser to Linn and LinnCo. Credit Suisse Securities advised Berry, and Wachtell, Lipton, Rosen & Katz was the legal adviser.
Reporting by Swetha Gopinath in Bangalore; Editing by Roshni Menon and Sriraj Kalluvila