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 sell Carnival Corporation (CCL)?
Although Carnival has a good management team led by Arnold Donald and a strong fleet of cruise ships, street estimates were too aggressive for the company to meet, which may have warranted a sale of the stock. The company trades at a high forward multiple, which implies that the Street was expecting strong growth. Management also believes in the company’s growth, as it has started a new advertising campaign and plans to purchase three ships per year going forward. This advertising and capex spending will burn a large percent of the company’s free cash flow, which wouldn’t be available to return to company shareholders in the form of a buyback or a dividend.
What does Carnival Corporation do?
Carnival Corporation, incorporated in 1972, and Carnival plc operate a dual-listed company (or DLC), whereby the businesses of Carnival Corporation and Carnival plc are combined through a number of contracts and through provisions in Carnival Corporation’s Articles of Incorporation and By-Laws and Carnival plc’s Articles of Association. The two companies operate as if they were a single economic enterprise with a single senior executive management team and identical Boards of Directors, but each has retained its separate legal identity.
With 100 cruise ships, Carnival is the largest cruise company and among the most profitable and financially strong leisure travel companies in the world. It has a portfolio of many of the world’s best-known cruise brands that are sold in all the world’s major vacation markets and are a leading provider of vacations to all major cruise destinations throughout the world.
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: