Stock Deal: Linn Energy (LNGG)
Posted: Fri Jan 05, 2018 1:04 amI have another stock opportunity to look at, but this is different from the odd lot tender offers such as CBS/Entercom where you can buy 99 shares and know they will take all 99. On this one everybody is prorated. Still it may be worth doing. Let me explain.
The company is Linn Energy (Ticker: LNGG). It closed today at $41.00 and there is a buyout for shares at $44.00 per share in cash. $3.00 per share profit (less commissions and reorganization fees) sounds pretty good. However, the rub is that Linn Energy will almost certainly buy only a portion of the shares that are being tendered. The upshot is that you could buy stock and have 1/3 of your shares taken (just a wild guess) and have the other 2/3 returned to you. So you could make a profit on 1/3 of your shares and lose on the other 2/3. Just wanted to get that out of the way- there is absolutely no guarantee of a profit and this isn't as safe as the CBS/Entercom deal was. For that deal you could have been assured that up to 99 shares per tax ID would all be taken from you and you would have an almost certain chance of making a profit.
A few details about this offer. In this case you would buy shares of LNGG (not limited to 99, but whatever amount you are willing to do). You then would contact your broker and indicate that you want to "tender your shares" to have a chance at getting $44 a share for at least some of the shares. Some time around late this month (exact date unknown) you should receive $44 cash for the shares that are taken, assuming you proactively contact your broker in time to indicate that you are interested in tendering your shares. You may then want to sell the LNGG shares that are returned to you to exit the position. (When I do these transactions, I do them as a quick trade- NOT as a buy and hold. If you have a hard time selling (some people have a very hard time selling- for emotional reasons), you might want to rethink whether a deal like this is even worth considering.)
Although the official deadline for the tender offer is 1/19/18 (Fri.), the deadline at your broker will likely be 1-3 days BEFORE that. Contact them to see when their deadline is.
There is no way of knowing in advance how many shares LNGG will take. This is dependent on human behavior, which is difficult to predict. Let me throw out some numbers to give a bit of context, however.
Per Yahoo! Finance- LNGG currently has a total of 83.57 million shares outstanding. They are looking to buy up to 7.3 million shares of stock. It would be very unusual for them to buy any less than that.
The good news is that their float (freely traded shares) is only 30.43 million shares (also per Yahoo!), nowhere near the 80+ million outstanding. What this means is that if EVERYONE who owns the stock tendered their shares, you'd likely have 24% of your shares taken at $44 a share (7.3m divided by 30.43m). Now I think it is very safe to say that it is virtually impossible for everyone to tender their shares. I've never seen that happen or even come very close to happening.
The following are some reasons why I don't think it is realistic to think that all shares will be tendered:
There are always people who don't monitor their brokerage accounts very closely. There are people who have other people manage their accounts for them, and the ones who manage the money often have clauses that protect them in case they don't become aware of these deals in time. There are also people who manage their own money (in other words, self-directed) and don't find out til it is too late. Trust me, I've been on the receiving end of literally hundreds of phone calls from people who asked about tender offers AFTER the deadline had passed. They could be calling late because they were sick, on vacation, didn't have mail forwarded to them in time, were too lazy to read their mail/email in a timely fashion, or whatever.
Then there is another component that could actually work in your favor and that is the people who ABSOLUTELY HATE this company because they lost money during the bankruptcy. These people may in some cases own LNGG stock (if they bought it separately), but may in the back of their minds think it will be years before they can get their lost money back. So they may ignore any mail or emails they receive with details of a tender offer.
All of those items serve to reduce the number of share tendered. If I had a rough guess, I'd estimate that 50-60% of the float would be tendered. Let's split the difference and say it is 55% of the float that is tendered, or approximately 16.74 million shares. If they are buying 7.3 million shares, that would be about 44% of what is tendered. Not bad in my opinion, although this is just a guess and I could be way off.
Some other factors to consider:
1) LNGG is NOT traded on a major stock exchange like the NYSE or NASDAQ, even though it is a U.S. company. This is a minor negative, but not a deal breaker.
2) Linn has a bad reputation in some people's minds as they declared bankruptcy last year. They used to trade under the symbols LINE and LNCO. They had a TON of debt and had to reorganize to get the company back on solid footing.
3) Right now we are in a cold weather situation in much of the U.S. As a result, natural gas stocks stand to potentially benefit from the cold weather, and that could potentially help Linn as well.
4) There is an excellent chance that you will receive a decent profit on the shares that are taken in the offer, however there is a slim chance that Linn could back away from the deal at the last minute. They can always say it is due to "market conditions" or some such B.S. This is NOT likely, however. I'm not concerned about that, but just wanted the ultra conservative people reading this to be aware.
5) A wildcard point that should be made is this. In addition to declaring bankruptcy last year, the company is HQ'ed in Houston, TX. Houston had the incredible misfortune of being hit with unbelievable rainfall and lots of flooding as a result of Hurricane Harvey in late August. I'm speculating, but I think that with the bankruptcy and the hurricane, the last thing the company wants is a botched tender offer. I therefore assign a very high chance that this one will work out just fine. No guarantees, of course. You need to do your own research and decide whether it is worth the risk.
6) This stock only trades about 120,000 shares a day. So if you run out and buy a big number (like 10,000 to 20,000 shares), your one order to buy (and sell when you have shares returned to you) could move the market for the stock. Please DO NOT do a market order to buy or sell- use a limit order where you are naming the price that you are willing to pay/receive. Don't be THAT person!!!
All the above said, my wife and I are both doing the deal. I don't want to say how many shares we are buying, but it is way more than the 99 shares per person that we did on the CBS/Entercom deal. We have already bought and tendered our shares. I will say this. If for some reason the stock gets close to the $44.00 price (exactly how close and by when, I don't know and I don't want to share the specific number), I will likely contact my broker to take back the shares that were tendered and then sell them in the open market. That way I get paid even sooner and don't have to be worried about some shares being returned to me that I might have to take a loss on.
Good luck to all. Please feel free to ask any questions you may have. If they are not of a personal nature, please respond to this thread so I can address everyone at the same time. Thanks in advance. Happy New Year!
The company is Linn Energy (Ticker: LNGG). It closed today at $41.00 and there is a buyout for shares at $44.00 per share in cash. $3.00 per share profit (less commissions and reorganization fees) sounds pretty good. However, the rub is that Linn Energy will almost certainly buy only a portion of the shares that are being tendered. The upshot is that you could buy stock and have 1/3 of your shares taken (just a wild guess) and have the other 2/3 returned to you. So you could make a profit on 1/3 of your shares and lose on the other 2/3. Just wanted to get that out of the way- there is absolutely no guarantee of a profit and this isn't as safe as the CBS/Entercom deal was. For that deal you could have been assured that up to 99 shares per tax ID would all be taken from you and you would have an almost certain chance of making a profit.
A few details about this offer. In this case you would buy shares of LNGG (not limited to 99, but whatever amount you are willing to do). You then would contact your broker and indicate that you want to "tender your shares" to have a chance at getting $44 a share for at least some of the shares. Some time around late this month (exact date unknown) you should receive $44 cash for the shares that are taken, assuming you proactively contact your broker in time to indicate that you are interested in tendering your shares. You may then want to sell the LNGG shares that are returned to you to exit the position. (When I do these transactions, I do them as a quick trade- NOT as a buy and hold. If you have a hard time selling (some people have a very hard time selling- for emotional reasons), you might want to rethink whether a deal like this is even worth considering.)
Although the official deadline for the tender offer is 1/19/18 (Fri.), the deadline at your broker will likely be 1-3 days BEFORE that. Contact them to see when their deadline is.
There is no way of knowing in advance how many shares LNGG will take. This is dependent on human behavior, which is difficult to predict. Let me throw out some numbers to give a bit of context, however.
Per Yahoo! Finance- LNGG currently has a total of 83.57 million shares outstanding. They are looking to buy up to 7.3 million shares of stock. It would be very unusual for them to buy any less than that.
The good news is that their float (freely traded shares) is only 30.43 million shares (also per Yahoo!), nowhere near the 80+ million outstanding. What this means is that if EVERYONE who owns the stock tendered their shares, you'd likely have 24% of your shares taken at $44 a share (7.3m divided by 30.43m). Now I think it is very safe to say that it is virtually impossible for everyone to tender their shares. I've never seen that happen or even come very close to happening.
The following are some reasons why I don't think it is realistic to think that all shares will be tendered:
There are always people who don't monitor their brokerage accounts very closely. There are people who have other people manage their accounts for them, and the ones who manage the money often have clauses that protect them in case they don't become aware of these deals in time. There are also people who manage their own money (in other words, self-directed) and don't find out til it is too late. Trust me, I've been on the receiving end of literally hundreds of phone calls from people who asked about tender offers AFTER the deadline had passed. They could be calling late because they were sick, on vacation, didn't have mail forwarded to them in time, were too lazy to read their mail/email in a timely fashion, or whatever.
Then there is another component that could actually work in your favor and that is the people who ABSOLUTELY HATE this company because they lost money during the bankruptcy. These people may in some cases own LNGG stock (if they bought it separately), but may in the back of their minds think it will be years before they can get their lost money back. So they may ignore any mail or emails they receive with details of a tender offer.
All of those items serve to reduce the number of share tendered. If I had a rough guess, I'd estimate that 50-60% of the float would be tendered. Let's split the difference and say it is 55% of the float that is tendered, or approximately 16.74 million shares. If they are buying 7.3 million shares, that would be about 44% of what is tendered. Not bad in my opinion, although this is just a guess and I could be way off.
Some other factors to consider:
1) LNGG is NOT traded on a major stock exchange like the NYSE or NASDAQ, even though it is a U.S. company. This is a minor negative, but not a deal breaker.
2) Linn has a bad reputation in some people's minds as they declared bankruptcy last year. They used to trade under the symbols LINE and LNCO. They had a TON of debt and had to reorganize to get the company back on solid footing.
3) Right now we are in a cold weather situation in much of the U.S. As a result, natural gas stocks stand to potentially benefit from the cold weather, and that could potentially help Linn as well.
4) There is an excellent chance that you will receive a decent profit on the shares that are taken in the offer, however there is a slim chance that Linn could back away from the deal at the last minute. They can always say it is due to "market conditions" or some such B.S. This is NOT likely, however. I'm not concerned about that, but just wanted the ultra conservative people reading this to be aware.
5) A wildcard point that should be made is this. In addition to declaring bankruptcy last year, the company is HQ'ed in Houston, TX. Houston had the incredible misfortune of being hit with unbelievable rainfall and lots of flooding as a result of Hurricane Harvey in late August. I'm speculating, but I think that with the bankruptcy and the hurricane, the last thing the company wants is a botched tender offer. I therefore assign a very high chance that this one will work out just fine. No guarantees, of course. You need to do your own research and decide whether it is worth the risk.
6) This stock only trades about 120,000 shares a day. So if you run out and buy a big number (like 10,000 to 20,000 shares), your one order to buy (and sell when you have shares returned to you) could move the market for the stock. Please DO NOT do a market order to buy or sell- use a limit order where you are naming the price that you are willing to pay/receive. Don't be THAT person!!!
All the above said, my wife and I are both doing the deal. I don't want to say how many shares we are buying, but it is way more than the 99 shares per person that we did on the CBS/Entercom deal. We have already bought and tendered our shares. I will say this. If for some reason the stock gets close to the $44.00 price (exactly how close and by when, I don't know and I don't want to share the specific number), I will likely contact my broker to take back the shares that were tendered and then sell them in the open market. That way I get paid even sooner and don't have to be worried about some shares being returned to me that I might have to take a loss on.
Good luck to all. Please feel free to ask any questions you may have. If they are not of a personal nature, please respond to this thread so I can address everyone at the same time. Thanks in advance. Happy New Year!
