Grifols moves the levers to straighten its financial course. The aim of the Catalan laboratory is to collect around 2,000 million euros with which to reduce the company’s high indebtedness and give a signal to the markets to support its recovery after Covid-19, according to financial sources familiar with the movements of the multinational listed on the Ibex 35. Among other possibilities, the company works in sales of subsidiaries –such as the business in china or the diagnostic area–, while it continues to listen to the option of entering the capital of venture capital funds, an alternative that the company has seen as unlikely in the last year when seeing its action weighed down on the Stock Market.
Industrial problems due to the reduction in obtaining plasma (the raw material necessary for its medicines) due to the Covid-19 pandemic and the rise in debt due to the purchase of its German rival Biotest has triggered leverage, which reaches 8.6 times the ebitda. The company maintains the objective of reducing it to four times, for which it trusts, first, in the improvement of the business margins in the coming months. But the market does not see this rise in activity enough, so the company works to activate those levers.
The laboratory’s recently elected CEO, Steven Mayer, already clarified in a conference with analysts last month that he was considering several alternatives to enter a strict financial diet and save the pothole, which has made him lose more than a third of his value this year. Among them, the manager mentioned sales of minority stakes in some of his businesses, the merger of his A and B shares or, even in the longer term, a capital increase.
The market has already set its eyes on the transactions that would allow the group to be given oxygen. One of the companies that would allow Grifols to obtain more resources is selling your business in china. The laboratory entered shanghai raas in 2020, a company of which it is the main shareholder with 26% of the capital. Valuations for that stake diverge, but it could exceed $2 billion. One of the arguments put forward by investment banks to encourage the company to carry out this transaction is the few synergies it represents in the group, by contributing barely 50 million euros in terms of ebitda.
The other subsidiary that the market puts in the trigger has many more synergies. And that makes it less attractive for a transaction. This is the diagnostic area, to which the first appraisals show a valuation of 2,000 million, although Caixabank raises it to 3,600 million.
The 2,000 million euros is precisely the magic figure that the company has set for itself to solve its financial problems. The company accumulates a net financial debt that exceeds 9.300 million. The investment bank explains that the company keeps the door open to carry out a capital increase, only if conditions improve, as another of the alternative options. The financial sources consulted suggest that the company listens to the interest of capital funds risk interested in reaching up to 20% of the capital.
This option could be channeled through a capital increase without rights, for which the Grifols board of directors has authorization from the board to execute up to that threshold to allow the entry of a new investor. The company already negotiated an operation of this type at the beginning of the year, when it received interest from firms such as Hellman&Fridman, CVC and KKR, among others.
According to yesterday’s stock market closing, with a capitalization of 6,500 million, this 20% of the company is valued at 1,300 million. To reach the promised 2 billion, Grifols would need the share to recover 50%. Yesterday it went up 5%.
The company refers to the words of the CEO pronounced last month, currently ruling out that option due to the discount in the share price. The “current price levels do not favor” this option, according to the document sent by the company to the market.
The debt problem and other levers
Grifols’ debt has skyrocketed to over 9.3 billion for two fundamental reasons. The first, the purchase of Biotest, which increased the liabilities by 2,000 million. But also because of the blow that the KPMG auditor gave him when he considered that the injection of the Singapore GIC sovereign wealth fund should considered as debt, a problem the company assured at the shareholders’ meeting that it was seeking to reverse.
GIC had entered into the capital of Biomat, the US subsidiary that controls a large part of the plasma collection centers. Precisely that is another of the levers that the multinational can activate, that of the search for partners for subsidiaries.
Another of the levers that Mayer referred to last month is the merger of class A shares with those of class B (without political rights), although he stated that at this time it is not on the table also due to the low price of the Titles. Through this option, more class A shares could be issued in exchange for the cheaper class B shares. According to Citi, the Catalan pharmaceutical could obtain 700 million with this movement.
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