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Linn Energy Exchange Offer Implications: Just The Facts


Monday April 25th at midnight is the deadline for Linn Energy unitholders to exchange Linn units for LinnCo shares.

The choice is not an easy one for present unitholders. There are a multitude of factors to consider.

In the following, I provide my analysis for your consideration.

I feel for all current Linn Energy (NASDAQ: LINE) unitholders. This is not the type of situation you hope for. The April 25th at midnight deadline to accept the a 1:1 exchange offer of shares for units is upon us. It is never fun choosing between the lesser of two evils. The Linn Energy and LinnCo (NASDAQ: LNCO) debacle has been on the tip of everyone's tongue in the Texas oil patch as of late. More importantly, current unitholders are wondering what option is best. Should current unitholders exchange shares, or sell now? In the following I offer my two cents for you to take or leave. Following in the footsteps of one of my idols, Joe Friday from the TV show Dragnet, I will do my best to present just the facts.

What Happened?

LINN Energy is basically offering unitholders a way to get out of having the unthinkable happen. Current unitholders, of which there are many, who do not exchange their units in LINE for shares of LNCO by April 25th at midnight EST will be left with the unwelcome responsibility of paying taxes on profits they never possessed. It boggles the mind, yet happens all the time in bankruptcies. It is a matter of accounting. For every debit there must be a credit. Unfortunately, in this circumstance unitholders are bound to get the short end of the stick.

When a bankruptcy is performed any debt written off is considered profit and therefore taxable. Those 'phantom' profits are then passed through to the unitholders along with the associated tax liability. This is why you need to consult your tax advisor prior to making any decisions. Plus there are many other tax implications for you if you...