Stock Deal: Linn Energy (LNGG)

[Recyclersteve]

I 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!

[Recyclersteve]

I have made a number of changes (edits) to my original post. As of 1:40am EST on 1/5/18 (Fri.), it should be ok. If any other changes are made, I will add a new posting so you don't have to go back and reread the original long post over and over. One more editorial comment- my family has done quite a few of these corporate actions since 2011 and the track record has been outstanding. Well in excess of 90% have been profitable. Good luck to all, but please don't do anything silly like putting everything you've got into it.

[Recyclersteve]

Can't believe that nobody responded to this one.

Guess what? Linn Energy (Ticker: LNGG) raised the price they are paying from $44 a share to $48 a share. Also, the official deadline has been extended from 1/19/18 (F) to 1/22/18 (M). Your broker will likely have a deadline that is 1-3 days earlier.

PLEASE read through my original post before making any decisions on this one.

[highroller4321]

Isn't there a high "risk" chance of getting stock with the original shares and not having a good portion bought out at the higher price?

[Rodebaugh]

Do brokerages charge a tender participation fee?

[Recyclersteve]

Isn't there a high "risk" chance of getting stock with the original shares and not having a good portion bought out at the higher price?

I explained in pretty good depth in my original post why lots of people will almost certainly NOT tender their shares. The fewer the number of shares that are tendered, the higher the percentage that LNGG will take.

Raising the price does something else as well. It tells me (and other shareholders) the company thinks the stock is worth much more.

The fact that the company raised their price by so much is a hint to me that there haven't been many shares tendered as yet. I don't have access to actual numbers, so this is just speculation on my part.

I fully realize I could lose some money on the shares that are returned to me, especially if there is a mass dumping that occurs when everyone gets shares back. If I make a really good profit on perhaps 1/3 of the shares, I don't mind losing a nominal amount on the other 2/3. That, to me, is well worth it. This is just speculation on my part, but the company may have some kind of stock buyback program in effect and try to "protect" the stock from falling too much when shares are returned to shareholders.

Another point- this Wednesday (the 10th) Linn Energy will be at a Goldman Sachs Energy Conference in Florida. There could be people there who find out about the deal for the first time and bid the stock even higher. Then there could be some segment of the population that just buys LNGG stock because of the details they find out about on Wednesday. Some of these people might have no intention whatsoever of participating in the tender because they think the stock is worth a much higher price, say $60 to $80 a share. They could rationalize "Why would LNGG offer to pay $48 if it wasn't worth a lot more?"

[Recyclersteve]

Do brokerages charge a tender participation fee?

You will pay a commission to buy shares and sell shares that are returned to you, so two commissions. There is a reorganization fee that your broker will likely charge. This is typically between $20-45 per account. At Schwab the fee is $39, except for certain exempt accounts (active traders and those with $500k or more in assets held at Schwab).

Check with your broker to see what the fee is. Also, the fee may be less if you can tender your shares online rather than going through a live broker.

[Recyclersteve]

For anyone who is thinking about doing the LNGG deal, I would seriously consider buying on Tuesday the 9th, ahead of the Goldman Sachs Energy Conference. The conference could bring in additional buyers who bid the stock even higher.

[chris6084]

Can't believe that nobody responded to this one.

Guess what? Linn Energy (Ticker: LNGG) raised the price they are paying from $44 a share to $48 a share. Also, the official deadline has been extended from 1/19/18 (F) to 1/22/18 (M). Your broker will likely have a deadline that is 1-3 days earlier.

PLEASE read through my original post before making any decisions on this one.

Although they increased the per share price, the total dollar amount amount used to buy shares remains the same. So therefore, less shares will be purchased. They will now be buying 6,770,833 shares vs the original 7,386,364 shares.

[Recyclersteve]

Can't believe that nobody responded to this one.

Guess what? Linn Energy (Ticker: LNGG) raised the price they are paying from $44 a share to $48 a share. Also, the official deadline has been extended from 1/19/18 (F) to 1/22/18 (M). Your broker will likely have a deadline that is 1-3 days earlier.

PLEASE read through my original post before making any decisions on this one.

Although they increased the per share price, the total dollar amount amount used to buy shares remains the same. So therefore, less shares will be purchased. They will now be buying 6,770,833 shares vs the original 7,386,364 shares.

That is correct.

[Rodebaugh]

Sometimes you see stock bought in tender in a preferential basis.

Example: GE is buying 10Mil tendered shares from holders and they decide to buy out small (less than 100) odd lot stake holders first. So If the stock owner has 38 shares of GE they will be purchased first under this model closing out their position.

My question: is this common? Can we expect something similar from LNGG?

Disclosure: I plan to buy some LNGG today. So thanks for the tip.

[Recyclersteve]

There is NO odd lot clause on LNGG. That said, even if you bought and tendered 99 shares, you should expect to be prorated (have some shares taken and the majority returned).

[highroller4321]

Is there a way to tender the shares online or do I have to call?

[Recyclersteve]

Is there a way to tender the shares online or do I have to call?

Every broker is different. So you will need to ask yours if their is a way to tender online (to save money).

[highroller4321]

Is there a way to tender the shares online or do I have to call?

Every broker is different. So you will need to ask yours if their is a way to tender online (to save money).

No, way to do it online.

81 shares are now tendered.

[chris6084]

I appreciate the tip. I was able to learn a lot from what Recyclersteve wrote as well as what I read up on while doing my own due diligence. I'm going to be sitting this one out though. I like the 10% guaranteed win on shares that get bought out. But i'm concerned about the ones that don't sell and how much the price may drop when people dump what is left over from the stock buyout. The drop in price on the leftover shares could potentially take a good chunk out of your 10% gain on shares that did sell.

This is good news for those participating. Whenever I decide not to buy and sit on the sidelines and watch something, the stock surges. So you all will probably make a TON of money on this one.

[Recyclersteve]

We are near the exchange deadline for tendering on this one. If you haven't already tendered your shares, you should likely call your broker or go online (if you are able to) and tender the shares. If they say it is too late you may be able to tender a day or two late on a "try and attempt" or "best efforts" basis. That means your broker will do their best to accept your shares for the exchange offer, but can't guarantee that any will officially be taken (since you missed their in-house deadline).

Good luck to all.

[chris6084]

Based off of an article I read, it looks like of all shares tendered, 8.7% were purchased for $48. Is that what everyone here who participated saw?

I'm curious in these situations, if the pro-rated percentage is even across the board, or if there is preference to some shareholders.

[highroller4321]

Based off of an article I read, it looks like of all shares tendered, 8.7% were purchased for $48. Is that what everyone here who participated saw?

I'm curious in these situations, if the pro-rated percentage is even across the board, or if there is preference to some shareholders.

It appears the finalization is still pending?

[chris6084]

Based off of an article I read, it looks like of all shares tendered, 8.7% were purchased for $48. Is that what everyone here who participated saw?

I'm curious in these situations, if the pro-rated percentage is even across the board, or if there is preference to some shareholders.

It appears the finalization is still pending?

Looks like it will be final (payment made and remaining shares returned) by the 25th

[Recyclersteve]

On or about the 25th, not necessarily by the 25th. That might sound like a picky distinction, but there is a reason why the exact date is important. In some cases people sell their shares BEFORE they receive them. IF your broker allows it, you can do so because you have two business days for the trade to settle.

So let's say you sell on the 24th and shares arrive in your account the next day. Then you are fine. If it takes 3+ business days for the shares to arrive, then you have a potential problem on your hand and you may have a trade restriction placed on your brokerage account. The rules are set by each brokerage firm. Some may just send you a form letter and slap you on the wrist. Others could be much more strict as they can potentially be fined by others for infractions. Frequent offenders can even be "fired" by their brokerage firms.

All that said, there is something unsettling about this tender offer that just materialized today. I don't have the press release that came out today in front of me, but the gist of it is that LNGG is indeed paying $48.00 a share, but is only accepting about 8% of the stock (over 70 million shares) that was tendered. The thing that threw me for a loop was that Yahoo! Finance (in their Key Statistics area) said there are only 30+ million shares of LNGG stock in the float. Total outstanding stock is something like 80+ million shares, but that includes stock like treasury stock that isn't traded. So there is something that is strange about this tender offer and I don't have the answer as yet.

Another piece of info on LNGG. The release came out before market open today. LNGG closed yesterday at $43.00 a share. It opened today at $41.25 and quickly dropped to $38.05 in the first few minutes of the day. I suspect that short sellers detected potential weakness after the surprising announcement that only a paltry 8% of shares would be taken. Even with that happening, the stock wasn't at $38ish for very long and closed the day at $41.50, higher than where it opened on what is heavy volume (210k shares) for this stock.

So, while I am disappointed at the small percentage of shares that will be taken (there is always some risk, especially when there isn't the odd lot clause that protects people with 99 shares or less (a la the CBS/Entercom deal), it should still be ok. We will know very quickly, that much is virtually assured.

Another point for those who have extra cash to double down when value presents itself... Let's say that you get most of your LNGG shares back in the next several business days and you see the stock down sharply like it was early this morning. You might consider buying more shares at a lower price that may not last very long and then combining those shares with the ones returned to you to book a modest profit on the whole position. There are absolutely no guarantees that this will work, but I've done it several times in the past. Sometimes I was able to get out the same day- other times I might have to wait a few months before getting out. This was almost always profitable.

I don't want to give exact numbers on where I would place my order because we may be in there together competing for the same shares. I hope everyone understands that.

[highroller4321]

Stock finally settled today!

Out of 81 shares they took 7

I bought in at 43.11 so made $34.23. It cost me $38 to tender so lost $3.77.

Still have 74 shares to play with.


Hopefully the next one goes better!

[Recyclersteve]

Got my shares too. Haven't closed out everything yet, so don't know the bottom line as yet.

Two things about this one that were a mess:

Yahoo! Finance says the float is only 30.3 million shares which is the number I used to try and determine proration. Oh well- I'm not going to sue Yahoo. The other thing- I NEVER EXPECTED them to only take about 8% of the shares. Usually it is much more.

If this one had the 99 share clause we could have done 99 per tax ID and known they would all be sold at $48- that would have been a very nice profit for everybody. Imagine if they paid $44 instead of $48 on only 8% of the shares- that would have really sucked...

Don't give up on these- my track record since 2011 has been VERY SOLID.

[Recyclersteve]

Also, I would refrain from selling at an artificially low price early Monday morning. Look at what this stock did on Tuesday when it bottomed out at $38.05 in the first half hour or so of the day and then closed at $41.50. Panic never gets us anywhere and it might cause us to soil our pants! Volume should be over 100k on Monday.

Keep in mind- it is not like the stock market or oil and gas are acting poorly. That gives me more confidence in holding out for some kind of profit.

[Sanford02]

I bought 150 shares at $42.80. They took 13 shares so now I have 137. If I sold them all on Monday for $41.00, I would only lose about $250 total on the deal, which is not bad considering I made almost $1,000 on the CBS/ETM deal. I placed a limit order to sell at $42.70, which would yield a small profit. I'll probably hold on to the 137 shares until I can break even or better.