Grifols shares are experiencing another session of volatility this Wednesday after the dark day on Tuesday, in which they fell 25.9% after the bearish fund Gotham City Research published a report accusing it of falsifying accounts to hide debt . The company today announced legal action over the allegations.
The day has gone in sections in the price. The pharmaceutical company’s shares rose nearly 5% at the opening, then turned around and lost 3%, anticipating another day of high volatility. In the middle of the session, after knowing the legal front that the company will open, it catapulted 9%.
Gotham City, which uncovered Gowex’s accounting fraud in 2014 with a similar report, maintains that Grifols “manipulates” its declared debt and operating profit or ebitda. Grifols rejected the accusations in a document sent to the National Securities Market Commission (CNMV), in which it described them as “false information and speculation” and assured that all the transactions that Gotham denounces were explained to the regulators and are included in audits and endorsed by them.
As a short-term fund, Gotham City makes money when the shares of a company it has invested in fall. The firm informed the CNMV on Monday that it had opened a short position in Grifols equivalent to 0.57% of its capital, which was then equivalent to 51 million euros. The first reaction of the markets was the sale of shares, with a drop of up to 50% in the titles, to then recover ground and close the session with a drop of half. In total, the report erased 2.2 billion in company value.
The company is expected to hold a conference with investors this Wednesday to refute the accusations. Gotham City focuses mainly on the relationships between Grifols and Scranton Enterprises, a company in which some directors and members of the Grifols family maintain their shares in the company. The fund accuses them of consolidating profits from companies in which it does not have shares, of uncollected cross loans and of fictitious debt levels.
“As a company committed to transparency, integrity and ethical conduct, we categorically deny and reject any accusation of accounting practices or erroneous information in our consolidated financial statements,” the company countered yesterday. It stated that the way of carrying out the operations that are questioned “is fully endorsed” by its auditor, KPMG, with records in the books and accounts presented to the CNMV and the US SEC.
The reactions outside the trading floor called for caution. The president of the Spanish regulator, Rodrigo Buenaventura, assured that the CNMV “will exercise its powers to clarify the situation.” Among the analysts who follow Grifols, it was pointed out that the report is “inaccurate, exaggerated and extremist in many of its arguments”, in addition to having an interest in the bearish position of Gotham City, pointed out Álvaro Arístegui, from Renta 4.