The bearish fund Gotham City Research charged again this morning against Grifols, questioning the financial relations of the pharmaceutical group with Scranton, an investment company owned by several members of the founding family.
Thomas Glanzmann, executive president of the pharmaceutical company, assured in a meeting with analysts that Gotham’s report is “misleading” and recalled that the operation he questions is included and explained in its accounts, and has been endorsed by the KPMG audit and by the CNMV, which also certified that the company’s commercial relations with related parties have been carried out at market prices.
But in Gotham’s opinion, “the fact that there were Scranton shareholders on the board of Grifols, while this transaction was being carried out, seems like a total failure of corporate governance.”
The fact that the operation was already known has meant that Gotham’s fourth report has had little impact on the Catalan pharmaceutical company’s price, which after initially dropping 5% closed with an increase of 0.45%.
In a note published before the market opened, the same day the firm plans to present its results, Gotham points out that BPC “over the years” has transferred funds that it “received from a third party, most likely Grifols,” to its shareholder.
According to the vulture fund, which warns that it has a bearish position on the company and therefore benefits from the drop in the share price, a similar situation occurred with Haema, another Scranton company that also owns plasma centers. “However, unlike Haema, BPC has since declared a dividend to Scranton. Instead of paying this dividend in cash, BPC has canceled loans worth about €266 million that it had granted to Scranton. This leads us to believe that Scranton never intended to repay these loans,” Gotham notes.
The fund’s report, “How an Advance Becomes a Loan,” considers that in that transaction “almost all of this sum has been suspiciously transferred from Grifols shareholders to Scranton shareholders, giving the appearance of having been transferred incorrectly.”
Gotham’s note points out that with this dividend “we estimate that the implicit profitability of this sale is approximately 22% annually” so “we congratulate Scranton shareholders for this fantastic transaction,” they add ironically.
The fund especially charges against Tomàs Dagà, whom it accuses of a conflict of interest for being a shareholder of Scranton at the same time as a director of Grifols, and for being secretary of the audit committee, despite no longer being one of its members since the Nasdaq , where the firm is listed, requires that all of them be independent directors.
Gotham also carries the intention expressed by Thomas Glanzmann and Nacho Abia, president and CEO of Grifols, in their interview with La Vanguardia to exercise Grifols’ purchase option for BCP, and they even threaten the directors.
“The board of Grifols should be VERY (capitalized in the note) careful about how they intend to unwind this transaction, as they need to preserve the value of this debt payable from Scranton to Grifols and NOT let it disappear when they exercise the purchase option” .
The fund adds that “if Grifols allows this value to disappear, (the board) will have been negligent and probably personally responsible for the destruction of value. “There could already be significant liabilities for board members due to this transaction.”
Alternatively, the fund notes that “it would be best for everyone to completely reverse this regrettable episode of corporate governance back to the 2018 situation, followed by reporting those involved to the relevant authorities.”
