In this six-part series, we will go through each one of the larger positions DE Shaw traded this past quarter
DE Shaw is a New York–based $30 billion-plus quantitative hedge fund founded in 1988 by David E. Shaw, a former Columbia faculty member. The firm’s primary trading method is systematic and computer-driven. DE Shaw has over 1,000 employees in North America, Europe, and Asia, with an international reputation for successful investing based on innovation and strong risk 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).
Why go long NV Energy (NVE)?
NV Energy met consensus in the second quarter as customer use of its utilities grew and the economy slowly recovered. Plus, MidAmerican offered to buy the company for $23.75 per share in an all-cash transaction. Since regulatory approval was pending, there was a merger spread to the bid that DE Shaw could take advantage of for a profit. MidAmerican is owned by Warren Buffett. MidAmerican CEO Greg Abel approved the purchase because of confidence in the company’s management team and his belief in Nevada’s underlying economic growth.
What does NV Energy do?
NV Energy Inc. is an investor-owned holding company that owns four primary wholly owned subsidiaries: Nevada Power Company, Sierra Pacific Power Company, NVE Insurance Company, and Lands of Sierra. The company serves 8.4 million customers.
The utilities operate three business segments, NPC electric, SPPC electric, and SPPC natural gas. Electric service is provided by NPC to Las Vegas and surrounding Clark County, and by SPPC to northern Nevada. Natural gas service is provided by SPPC in the Reno-Sparks area of Nevada. The utilities are the major contributors to NVE’s financial position and results of operations.
NPC and SPPC are public utilities that generate, transmit and distribute electric energy in Nevada and, in the case of SPPC, also deliver natural gas service. At year-end 2012, NVE served approximately 1.2 million electric customers. Of these, approximately 850,000 electric customers (primarily in Las Vegas, North Las Vegas, Henderson, and adjoining areas) were served by NPC, and approximately 324,000 electric customers in an approximate 42,000 square mile area of western, central, and northeastern Nevada (including the cities of Reno, Sparks, Carson City, and Elko) were served by SPPC. Also, SPPC provided natural gas service to approximately 153,000 customers in an area of about 800 square miles in Nevada’s Reno/Sparks area.
Major industries served by the utilities include gaming and recreation, mining, warehousing and manufacturing, and governmental entities.
More on DE Shaw
Paul Singer created Elliott Associates in January 1977, starting with $1.3 million from friends and family. In its earliest years, the firm focused on convertible arbitrage. However, since the 1987 stock market crash and early 1990s recession, the firm has focused primarily on distressed debt investing, and it’s therefore commonly referred to as a “distressed debt” or “vulture fund.” More recently, the company has focused on activism. The firm’s strategies include: