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Did You Profit from Our Fifth Takeover Pick?

We just logged our fifth takeover play.

And I'm hoping that you pocketed yet another hefty profit.

Berry Petroleum Co. (NYSE: BRY) recommended to Private Briefing subscribers by Dr. Kent Moors back on Oct. 11, 2011 – last week became the fifth takeover stock we've given you when Linn Energy LLC (NYSE: LINE) agreed to buy the midstream producer for $4.3 billion.

Kent, our resident energy expert, is a world-renowned consultant and editor of the Energy Advantage  and Energy Inner Circle advisory services.

Berry joins Pentair Inc. (NYSE: PNR), Nexen Inc. (NYSE: NXY), CNH Global NV (NYSE ADR: CNH) and Aurizon Mines Ltd. (NYSE: AZK) as stocks that our experts have recommended to you that have ended up as buyout plays.

To illustrate just how lucrative this can be, we've logged gains of 61.5% in Pentair, 50% in CNH and 41% and 63% in Nexen (we recommended it twice).

The Houston-based Linn on Thursday agreed to buy Berry for $2.5 billion in stock (the debt involved boosts the deal's value to $4.3 billion) to boost its oil reserves in Texas, California, Colorado and Utah. The deal will boost Linn's output by about a third.

Because Berry's reserves are 75% percent oil, the buyout will increase Linn's exposure to liquids, which are more profitable than natural gas, Bloomberg News reported. Indeed, the purchase is the largest-ever for Linn, and is actually the biggest oil-and-gas purchase announced this year, Bloomberg News reported.

Linn announced four deals last year with a total value of $2.6 billion.

In a note to its clients, the Houstonbased energy-focused merchant banker Tudor Pickering Holt & Co. said the "deal makes sense given Berry's portfolio." Tudor says it adds "long-lived assets with slow decline rates, including fields in California, to Linn's holdings," Bloomberg reported.

Because of the structure of this deal, if you own Berry, you have two choices: You can sell out, and cash in on your profit. Or you can hold on through the deal's conclusion, after which you'll become a Linn shareholder.

To make your decision, you need to consider a couple of things.

Let's take a look.

Linn is what's known as a "master-limited partnership," or MLP – much loved by income-seekers for their generally ultra-high dividend yields.

At yesterday's late-afternoon price of $37.48, Linn shares featured a dividend yield of 7.5%.

Back on Feb. 16, Barron's posted a fascinating piece that raised questions about how Linn accounts for its hedging expenses, essentially describing how the company "capitalizes" instead of "expensing" them. By "capitalizing" those hedging costs, it can write off the expenses over time – instead of all at once, which influences its reported "cash-flow for distribution" number.

(The "distributable cash flow" is the metric that leads to the high payouts that MLPs pay.)

In a statement to Barron's, Linn expressed confidence "in the validity and accuracy" of its financial reporting.

Tudor Pickering rates Berry shares as a "Hold."

Back on Feb. 15, Howard Weil analyst David Amoss "broke ranks" with the analyst crowd and downgraded Linn from "Outperform" to "Sector Perform" – citing the company's treatment of its hedging costs as the reason, the Barron's story recounted. "Sector Perform" is essentially a "Hold," which is Wall Street-speak for "don't buy it right now." That's not the same as "Sell," and isn't a disaster by any means, but does mean investors need to think hard about what to do here.

In a note to his clients, Amoss cut his estimate of 2013 cash flow by 19% "to better reflect the underlying cost of the hedges." The payout (dividend) could be cut, he said – unless Linn was able to make accretive acquisitions this year.

Well, in announcing the deal (just five days after the Barron's story), Linn CEO Mark E. Ellis said "Berry's assets are an excellent fit for Linn, and we believe this transaction generates significant accretion to our distributable cash flow per unit."

Indeed, according to Linn, the Berry purchase is so accretive that it will boost distributable cash flow by 40 cents a share. And that already has Linn's management team looking at a dividend (distribution) increase once the deal closes.

To settle this once and for all, I've put a call in to Kent, and have asked for his take on Linn. Given his frenetic schedule, it may take a few days before he checks back.

But rest assured that he will.

So make sure that you check back, too.

Reverse Split Stock Posts Big Gain: Shares of junior miner Aurcana Corp. (TSXV: AUN) – Real Asset Returns Editor Peter Krauth's pick for the Private Briefing special report "The Seven Investments You Have to Make in 2013" – surged 10.7% yesterday … the same day Peter explained how a proposed "reverse split"could pave the way for big gains in the stock.

[Editor's Note: Unless we specifically say otherwise, we recommend investors employ a 25% "trailing stop" on all holdings.]

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