Gotham City Research, the vulture fund promoted by Daniel Yu, returned to the charge yesterday against Grifols, after publishing a report on January 9 accusing him of accounting fraud. The new report, which once again calls into question the company’s relationship with the founding family, had much less impact than the authors intended: although the company ended up falling 7% (instead of the 40% that caused the first attack), it quickly recovered and by mid-afternoon it was up 2%, to close at 10.93 euros, with a retreat of 0.36%.
In a communication to the National Securities Market Commission (CNMV), Grifols “categorically” rejected the report, which it described as “malicious, false and misleading insinuations from Gotham whose sole aim is to destabilize Grifols and cause doubt among institutional investors”.
The fund, which is being sued in the United States for libel by the pharmaceutical company, is now not accusing him, but raising seven “questions” about his relationship with Scranton Enterprises, the investment holding he has among the shareholders with several family members scribbles
The pharmaceutical company reiterated in the letter to the CNMV that it “continues with the lawsuit against Gotham” and that it provides the various authorities with the information they have asked for about the case.
Gotham acknowledged in the letter, of little more than one folio, that some of the “questions” are based on articles that have been published in the Spanish press. In his opinion, the changes in governance that Grifols has introduced in recent weeks, with the disassociation of the family from executive positions, “indicate to us that at least some of our concerns were valid”.
The report acknowledges that again Gotham and its allies, such as the GIP fund, also sued by Grifols in New York, have short positions in the company, meaning they benefit from causing the stock to fall .
All the operations questioned by Gotham in the document already appear in the previous report, and the hedge fund considers that they have not been clarified by the pharmaceutical company. However, the fund now introduces two new questions, which it acknowledges are based on information published by the Spanish press: it questions the percentage of the Grifols family’s stake in Scranton Entreprises and questions the work that the group has entrusted to the Baker McKenzie buffet.
So, he points out, “Grifols’ audit committee hired Baker McKenzie to do an independent analysis of Grifols’ business and accounting practices. Baker McKenzie is a law firm, not a forensic accounting firm. Is Grifols willing to hire an independent forensic accounting firm to investigate business and accounting practices and make the findings public?”
Gotham questions, as in the previous report, that both Grifols and Scranton consolidate the companies Haema and BPC, owners of plasma centers, in their financial results. The firm also points to two loans from Grifols to “related parties”, for more than 160 million euros, as well as to the “financial assets with related parties” that Grifols places at 321 million euros, which it considers could have addressed to Scranton, and asks the group to confirm or deny if there is such a relationship.
The Gotham report did not surprise the markets: this fund usually issues two reports in bear attacks. However, it was surprising that he did not provide any new data and even referred to information from the press. “Gotham continues to reiterate governance issues between Scranton and Grifols that the market already knows about and have been addressed,” said Jaime Escribano, an analyst at Banco Santander. “It doesn’t add anything new,” acknowledged an XTB analyst, while an IBKR operator summed up that “the people of Gotham City are starting to make a bit of a fool of themselves with Grifols.”
