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Davidson Kempner Capital opens new positions 3Q 2013

Davidson Kempner Capital opens new positions 3Q 2013 (Part 1 of 6)

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

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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 buy Whitewave Foods Co. (WWAV)?

Whitewave Foods saw a strong 3Q 2013 with a 21% increase in EPS to $0.19. It had a strong top-line growth in 3Q with sales of $639 million, a 10% increase from adjusted net sales of $581 million in the third quarter of 2012. This was driven primarily by continued volume growth across the company’s North America and Europe segments. Net sales for the North America segment increased 8%, to $534 million, driven by category expansion, increased volumes, and new product innovations. The segment comprises three platforms: Plant-based Foods and Beverages, Premium Dairy, and Coffee Creamers and Beverages. Net sales in the European segment increased 19% in 3Q 2013, to $104 million, driven by continued robust volume growth of products launched in the prior year, including almond and hazelnut beverages, along with continued growth in non-dairy yogurt offerings. The segment comprises the European Plant-based Foods and Beverages platform, which operates primarily under the Alpro brand.

The company said it’s pursuing a sale of its Idaho organic dairy farm to allow its Horizon Organic business to focus on processing, marketing, and distributing Horizon milk and dairy products. It said it continues to maintain a leading market share of 43% in organic milk.

In terms of outlook, it expects continued growth in all its segments. Due to the impact of the private label exit and contract discontinuation, it anticipates sales in its Premium Dairy platform to be flat on a year-over-year basis in the fourth quarter. Overall, the company expects a sales growth rate in the high single digits for the fourth quarter. Consistent with previous guidance, it expects a high single-digit growth rate for full year 2013. It expects adjusted diluted earnings of between $0.19 and $0.20 per share for the fourth quarter.

The company recently announced an agreement to acquire Earthbound Farm, an organic food producer based in San Juan Bautista, California, from its existing shareholders led by Kainos Capital and founders Drew and Myra Goodman for approximately $600 million in cash. WhiteWave expects this acquisition will add approximately $0.07 cents per share to its adjusted net earnings in the first fiscal year—before transaction costs.

According to a report, “US Organic Food Market Analysis” by RNCOS, the organic food industry globally has seen a sharp growth over the past few years, driven by increasing concern towards health issues, environmental protection, food safety, and animal welfare. The organic food segment in the U.S. has shown strong growth, and the industry is expected to generate around 14% CAGR during 2011–2015. Another report by Transparency Market Research stated that demand for organic food and beverages was valued at $70.70 billion in 2012 and is expected to reach $187.85 billion by 2019, growing at a CAGR of 15.5% from 2013 to 2019. These trends will prove beneficial to companies like WhiteWave and its peers, including Hain Celestial Group (HAIN) and Lifeway Foods Inc. (LWAY).

The WhiteWave Foods Company is a leading consumer packaged food and beverage company that manufactures, markets, distributes, and sells branded plant-based foods and beverages, coffee creamers and beverages, and premium dairy products throughout North America and Europe. Earlier this year, WhiteWave Foods completed its previously announced spinoff from dairy giant Dean Foods Co. (DF).

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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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