Gotham City Research, the investment firm known in Spain for causing the bankruptcy of the Wi-Fi operator Gowex ten years ago, has put Grifols on the ropes. The Catalan pharmaceutical company, which develops medications derived from plasma, has plummeted more than 40% on the Ibex this Tuesday after the hedge fund has accused him in a devastating report of doctoring his accounts to hide debt. “We believe that his shares are probably worth zero,” he states bluntly in the document. In a statement, Grifols has “categorically” denied the accusations.
The controversial bearish fund, run by Daniel Yu and Cyrus de Weck, accuses the company and Scranton Enterprises BV (the holding company of the founding family and owner of 8.4% of the capital) to “manipulate” its financial reports to “artificially” reduce its debt. The method that he would have used to hide his true debt is to completely consolidate the companies BPC Plasma and Haema in Grifols' financial statements since 2018, despite the fact that that year the plasma company sold these two companies to Scranton Enterprises for $538 million. (490 million euros).
According to Gotham City, which was named in honor of the city of the comic book character Batman, both companies compute the profits of Haema and BPC Plasma, fully consolidating them on their balance sheet as their own despite the fact that Grifols “has 0% in them.” . “This treatment is materially misleading and incorrect,” maintains the report, published this Tuesday at 7:30 and titled Grifols SA: Scranton and undisclosed debts. “We believe that shares are not useful as an investment,” says the fund, which estimates the real debt at 9 billion.
The inclusion of these two companies in the accounts has a significant effect. Specifically, Haema and BPC Plasma represent approximately 40% of the pharmaceutical company's profits and come from non-controlled shares, that is, from a subsidiary not attributable, directly or indirectly, to Grifols, according to the fund. Scranton also fully consolidates both partnerships and, where applicable, the earnings of these entities “appear to represent more than 100% of Scranton's earnings.”
The bearish fund (specialized in betting that a stock market value will go down) concludes that this operation inflates the operating result and hides half of the debt that Grifols actually carries. Instead of a leverage of six times debt to operating income (Ebitda), Gotham estimates it is closer to between 10 and 13 times. That is, if all that debt arose, the company would be worth zero euros.
Grifols Defense
Grifols, which had a market capitalization of 8.6 billion euros until the close of the session on Monday before this morning's collapse, has assured this Tuesday in its defense that its consolidated financial statements and internal controls “are robust” and are subject to to regular and rigorous annual audits. “These annual audits are carried out by one of the four large audit firms, which has systematically issued audit reports without qualifications,” he adds in a note to the National Securities Market Commission (CNMV). It is the auditor KPMG that signs the 2022 accounts. The stock market supervisor is analyzing the Gotham report and has contacted Grifols to request data, according to agency sources.
The pharmaceutical company has based much of its growth in recent years on purchases that it has financed with debt, such as the acquisition of the American company Talecris Biotherapeutics in 2010 and the German plasma company Biotest, announced in 2021. Grifols, whose largest shareholder is The founding family began to have problems during the pandemic, when the business was paralyzed and the weight of debt in their accounts increased. Last year it launched a cost-cutting plan, changed its leadership and agreed to sell a 20% stake in the plasma company Shanghai RaaS to the Chinese group Haier for $1.8 billion to repay debt.
He hedge fund Gotham is a fund specialized in analyzing company accounts in detail and on its website it states that it has short and long-term investments in the companies on which it reports. According to CNMV records, one of the funds that has significant short positions (more than 0.5% of the capital) in Grifols is General Industrial Partners, linked to Gotham.
Gotham has previously targeted companies such as Criteo, dedicated to advertising; AAC Technologies, Apple supplier. Their latest target has been the French labeling company SES Imagotag, which last summer plummeted 60% the day Gotham accused management of accounting irregularities.
Gowex's disturbing precedent
Gotham City became popular in Spain for uncovering the Gowex company scandal. The company founded by Jenaro García in 1999 claimed to have contracts to extend free Wi-Fi services in the public sphere of 65 cities – New York, Madrid, Paris, Dublin and Dubai, among them – and in public transport companies. The company was held up as an example of startup successful Spanish company and was worth 2,000 million euros on the Alternative Stock Market (MAB) where these types of companies are listed.
On July 1, 2014, Gotham City published its report Let's Gowex: A Pescanovan Charade (The Pescanova farce), in which it revealed that around 90% of the income that Gowex declared did not exist, so its turnover was really only 10 million euros annually. The conclusion was the same as for Grifols: the technology company's listed securities were worthless. Also in this case, the founder denied the accusations which he called “manifestly false”, accusing the investment firm of trying to damage the company's image “to lower the price of its securities within a strategy of short-term investors. That is, make money by betting on the fall of the stock.
Just five days later, on July 6, Jenaro García admitted that he had falsified the company's accounts for at least the last four years (he would later confess that he had falsified them since its foundation) and presented his resignation, causing the board of directors of The company will request voluntary bankruptcy proceedings.
In April 2019, the Anti-Corruption Prosecutor's Office requested 18 years in prison and a 10.2 million euro fine for Jenaro García for alleged crimes of falsification of commercial documents, investor fraud, misappropriation, fraud against the budgets of the European Union and use of relevant information. In August of that same year, the judge of the National Court Santiago Pedraz decreed the opening of an oral trial, which has not yet taken place. While waiting for it, the founder and CEO of Gowex asked to go to prison and serve the sentence that would be set when the trial was held. With this, he intended to recover part of the record bail deposited at the time to avoid prison (600,000 euros) given his delicate financial situation, with hardly any income. But Judge Pedraz denied the request.
Follow all the information Economy and Business in Facebook and xor in our weekly newsletter
The Five Day agenda
The most important economic quotes of the day, with the keys and context to understand their scope.
RECEIVE IT IN YOUR EMAIL
#Grifols #sinks #stock #market #report #Gotham #firm #uncovered #Gowex #fraud
