It took Gotham City less than a week to attack Grifols again after the publication of the annual accounts last week, without the audit report or the signature of a director. He hedge fund American once again questions the operations of the Spanish blood products company with one of its shareholders, Scranton Enterprises, linked to the founding family, and two subsidiaries, BPC and Haema. Specifically, it warns about a cash management operation that, in the fund's opinion, actually represents a loan to the shareholder that it does not intend to repay. The company has reacted on the Stock Market with new falls, of up to 16%, which have moderated to around 12% mid-session. In any case, this new setback means hitting a new low since 2012.
Gotham once again accuses Grifols of lack of transparency. He states that, while he told the market in a relevant event on February 20 that all the questions asked by Gotham were resolved, he later offered more clarity and breadth of explanations to some analysts on operations related to its shareholders. Specifically, it cites a report from Kepler Cheveaux, in which this analysis house explains that, according to the company's explanations, the 321 million included in its accounts as “other assets from related-party operations” correspond to a cash pooling between Haema and BPC with Scranton. An agreement of cash pooling It involves the management of a single cash box between a parent company and its subsidiaries.
In Gotham's view, this agreement is not such. It is, in reality, a loan from these two subsidiaries to Scranton, “which has no intention of repaying in cash.” “It seems that the real money from the cash credits made by Grifols shareholders are going to be forgiven in payment of declared dividends, which are capital elements with book value,” states the report whose title summarizes its position and, above all, advances that it has not finished with the Catalan firm: How an advance payment is converted into a loan. Part 1 (Haema AG).
The links between Scranton Enterprises, owner of 8.6% of Grifols, and Haema and BPC emerge as key to Gotham's complaints about Grifols. In his opinion, the Catalan company has disguised its accounts to inflate the ebitda and reduce the debt through a move made in 2018. This was, after acquiring these two companies, selling them to its shareholder Scranton, but continuing to consolidate its results in its accounts, by virtue of retaining a purchase right.
Regarding the particular exchange of accusations between Grifols and Gotham, the Americans counterattack, regretting the “offensive and uncertain” qualifiers of the Spanish company when it has evaluated the negative reports. Instead, they emphasize that “the company's actions seem to confirm many of our main concerns. As they say, “watch what they do, not what they say.” Another of Gotham's attacks on Grifols is based on accusing the company of publishing an incorrect press release, in which it disclosed only some data selected by them. “Their commitment to transparency, integrity and ethical conduct is, at best, a work in progress. In most cases, it is something else,” the report says.
As confirmation of this thesis, Gotham boasts that Grifols denies its criticism but, since its report was known, there have been “three big changes” at the top of the listed company (and points out the change of CEO, the exclusion of family members of strategic decisions or the resignation of some of these names from their positions on the council) and wonders if they are “attempts to clean house or a ruse to give the appearance of change.”
In any case, “and beyond initial cordialities”, Gotham City goes on to analyze Haema's accounts and verify his theory of what is called cash pooling It is, in reality, a loan and is even defined that way by Haema itself and the auditor of its accounts (in this case, KPMG). Specifically, its investigations focus on a loan of 68 million granted from Scranton to Haema, which the fund considers that, taking into account the income of this German company, “it is unlikely” that it will generate enough cash to lend that money. . “Haema can only lend that money to Scranton with cash injections from Grifols,” says Gotham, charging that Grifols makes payments to Haema that are then diverted to Scranton under that lending agreement. cash pooling under suspicion. “Grifols can send money to its subsidiaries with zero economic interest to be transformed into loans and Scranton can call these loans advanced payments,” the report says.
Therefore, Gotham City renews its questionnaire to Grifols and poses seven new questions awaiting answers. First of all, it is questioned why Grifols exposed his position of the cash pooling to analysts but did not mention it in his official statements or to the press. As a second doubt, and once these loans to Scranton and even a personal one to the top person have been known, they demand to know if there are more unexplained transactions. The third refers to Haema's explicit definition of loan compared to Grifols' definition of cash pooling and why 318 million of Grifols funds were loaned to Scranton. The fourth and fifth questions affect the interest that Grifols would not be applying on these alleged loans to Haema or Scranton. The penultimate question urges Grifols to clarify what it will do regarding its control over Haema and BPC and whether it will use it to not pay Scranton the relevant dividends from these two companies. And, seventh and last, they return to the polite tone and ask “please” to explain how all these operations do not mean that Grifols shareholders are subsidizing those of Scranton.
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