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Davidson Kempner Capital opens new positions 3Q 2013

Part 5
Davidson Kempner Capital opens new positions 3Q 2013 (Part 5 of 6)

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

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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 NV Energy (NVE)?

NV Energy posted a decline in income to $187 million (or $0.79) per share for 3Q 2013, compared to $223 million (or $0.94) per share for the same period a year ago. It attributed the decrease mainly to milder weather compared to 3Q 2012 and a regulatory disallowance on reserves. The Nevada Public Utilities Commission recently completed its annual review and directed the company to refund 2012 revenues collected through the energy efficiency implementation rates, based on the finding that it earned more than its authorized rate of return last year. The regulatory items reduced gross margin by $32 million pretax or $0.09 per share after tax in the third quarter of 2013.

The decrease in earnings also included costs related to the planned merger with MidAmerican Energy Holdings, a subsidiary of Berkshire Hathaway. On May 29, 2013, MidAmerican Energy agreed to purchase all outstanding shares of NV Energy’s common stock for $23.75 per share in cash, a premium of about 23% to the utility’s closing price the previous day. The stock price is up 32% year-to-date.

The company reduced its earnings guidance range largely due to the regulatory disallowance in reserve recorded in the third quarter. It now expects to earn between $1.18 and $1.22 per share for calendar year 2013.

Headquartered in Las Vegas, NV Energy, Inc. is a holding company whose principal subsidiaries—Nevada Power Company and Sierra Pacific Power Company—are doing business as NV Energy. Serving a combined service territory of nearly 46,000 square miles, NV Energy provides a wide range of energy services and products to approximately 2.4 million citizens of Nevada and nearly 40 million tourists annually.

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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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