Grifols fights back. The Catalan pharmaceutical company will take legal action against Gotham City Research for the report that sank the company on the stock market this Tuesday and made 2.2 billion euros disappear from its capitalization in a single day. The document, in which the bearish fund accused the firm of doctoring its accounts to hide debt and that its real value is zero, has caused “significant damage, both financial and reputational,” Grifols states in a statement this morning in which it once again defends the integrity of its accounts and supports the management of the CEO, Thomas Glanzmann.
The accusations of the controversial hedge fund, which in Spain is known for causing the bankruptcy of the Wi-Fi operator Gowex in 2014, caused a hurricane in the Grifols price that, even this Wednesday, was thrashing around. The value opened the session, after the 26% collapse the day before, with increases of up to 4%; Shortly after, it fell again by almost another 4% and, after the announcement that the company was going to take Gotham to court, the value rebounded in mid-morning with a rise of more than 8% in Grifols, which develops derivative drugs. of plasma and is 30% controlled by the owner family. The multinational has decided to take the case to court and, according to the sources consulted, will now look for the most appropriate concrete formula to launch this process.
The offensive by Gotham City, a controversial fund specialized in doing business by betting on stock market crashes, against Grifols focuses on the company's debt, which it accuses of “manipulating” its financial reports to “artificially” reduce its debt by half by increasing the operating result with an accounting maneuver. Specifically, Gotham criticizes as “misleading” that Grifols has completely consolidated in its accounts the results of two companies, BPC Plasma and Haema, since 2018 despite the fact that in that year it sold them to Scranton Enterprises, an investment vehicle of the Grifols family that has 8.4% of the pharmaceutical industry. Thus, the accounts of the aforementioned two companies are consolidated both in the balance sheets of Grifols and in those of Scranton Enterprises, which has its tax headquarters in the Netherlands.
The Catalan company came out yesterday in defense of its accounts with a detailed statement to the National Securities Market Commission (CNMV) after a meeting of the Board of Directors and this Wednesday it sent another note to the supervisor. Those responsible have scheduled a conference for tomorrow, Thursday, with analysts and investors to explain the situation and stop the stock market drain. Grifols defends that it complies with accounting standards because, in reality, it continues to have power over the two companies sold to Scranton, by maintaining a purchase option “that can be exercised” and the financial capacity to carry it out.
“Consequently, the sale of the entities does not give rise to a loss of control, which is why the entities continue to be consolidated, being recorded as an equity transaction without any impact on the consolidated profit and loss account,” he states. Furthermore, he maintains that the relationship between Grifols and Haema and BPC Plasma is very close: “Under a management contract, Grifols continues to manage the plasma centers” and “purchases all the plasma obtained in these companies.” .
In a second statement this Wednesday, Grifols has presented more information to refute the investment firm that, in its devastating report, published yesterday an hour and a half before the markets opened, questioned numerous operations carried out by the multinational blood products. “Immunotek: we find the payment of 124.1 million to Grifos suspicious,” he headlines in one of the entries in the 70-page report. And Grifols responds: “The payments of 124 million refer to advances for the construction of the centers [de donación de sangre en Estados Unidos] and include both construction and start-up costs until opening. This contract and the accounting treatment have been audited and published in full in our annual accounts. The value of this agreement is in line with market prices.”
The company has also shown its public support for the management of Swiss executive Thomas Glanzmann, who has been on the board since 2006 and has been executive president since last year. “All the relevant operations described, published yesterday in the aforementioned report, have been unanimously approved by the Board of Directors of the company and its different Committees, and include all the necessary information and supporting documentation, including evaluations and opinions of third parties,” concludes the company.
The offensive against Grifols has not only brought down the value of the Ibex company; It has also put on the table the role of funds like Gotham and the strength of audit controls on listed companies. Gotham presents itself on its website as a “due-dilligence fund”, that is, it analyzes a company's accounts in detail and then takes investment positions in them. Afterwards, their strategy is usually bearish, that is, they bet that a value will fall.
In the case of Grifols, the day before publishing its report it notified the CNMV that it had taken a short position in Grifols equivalent to 0.57% of the capital (2.4 million shares). That means that it has borrowed these securities from other investors (a common practice in the case of large listed companies) to sell them immediately, on Monday. To return them, wait for the stock to fall, to buy securities in the market at a much lower price and return them with a capital gain. In the CNMV records this Wednesday you can see how Gotham has undone almost all of this short position and only has 255,000 shares, 0.006%. Between one day and the next, the stock fell 43% and closed yesterday 26% below Monday's price. In that difference lies the profit. According to Europa Press, it could be around 16 million.
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