Davidson Kempner Capital opens new positions in WWAV, CBS, MCD and sells LBTYK, NVE, FDX—13F Flash F

Market Realist

Davidson Kempner Capital opens new positions 3Q 2013 (Part 6 of 6)

(Continued from Part 5)

Davidson Kempner Capital Management LLC is an event-driven hedge fund manager led by president Thomas Kempner, Jr., who joined the firm in 1984. The firm was originally founded in May 1983 by Marvin H. Davidson as M.H. Davidson & Co. In 1990, current principals Kempner and Scott Davidson renamed the firm Davidson Kempner Capital Management. It has about $21 billion in assets under management.

Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).

The fund started new positions in Whitewave Foods Co. (WWAV), CBS Corp. (CBS), and McDonald’s Corp. (MCD) and it sold Liberty Global PLC (LBTYK), NV Energy Inc. (NVE), and FedEx Corp (FDX).

Why sell FedEx Corp. (FDX)?

FedEx’s stock has rallied due to positive earnings growth and plans to buy back 32 million shares. This shows management is confident about its strategy and wants to deliver value to shareholders. It said that for FedEx Express, first quarter operating income grew 14%, and operating margin improved 50 basis points year-over-year despite headwinds of tough airfreight markets and net fuel as well as one fewer operating day. The improvement was driven by stronger U.S. business performance, lower pension expense, and the continued monetization of the company’s aircraft fleet, which helped to drive maintenance costs lower. These were partially offset by higher related depreciation expenses.

FedEx had earlier embarked on cost-cutting efforts to improve its profit margins and counter customer demand for lower-priced shipping services in a slowing economy. The company has a robust financial position with a low debt-to-equity ratio. In its latest earnings announcement, the company reaffirmed its forecast despite tepid global economic growth for fiscal 2014 earnings per share (EPS) growth of 7% to 13% adjusted over fiscal 2013.

Stock prices went up in October, when FedEx Express announced flat-rate shipping to individual shippers and small business entities. Shares also saw a spike recently, when a number of hedge funds disclosed positions in the company. The stock is up 48% year-to-date.

It announced last week that it will increase shipping rates for FedEx Ground and FedEx Home Delivery by an average of 4.9%, effective January 6, 2014. FedEx SmartPost rates also will change. The increase could help drive growth in earnings in the upcoming quarters.

FDX

Davidson Kempner Capital provides its services to pooled investment vehicles. The firm invests in distressed debt and stocks of companies that are undergoing corporate restructuring, including mergers, spinoffs, liquidations, and recapitalizations. It also uses event-driven strategies, including merger arbitrage, long/short, and convertible arbitrage. The firm employs a fundamental analysis with a bottom-up approach.

Thomas Kempner, Jr., attended Yale University and the Harvard Business School. After graduating, he joined Goldman Sachs in 1978 as a bond trader. After a few years, he left and joined First City Capital. Kempner specializes in risk arbitrage.

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