Shares in hemoderivative maker Grifols fell as much as 50% on the stock market yesterday morning after bearish hedge fund Gotham City Research published an early morning report accusing it of hiding its real debt and fudging the accounts, which led him to give his shares a zero value. After a very volatile session, in which the shares fell as low as 7.41 euros, breaking the lows of the last ten years, the titles subsequently rose 42.3% from these levels and closed at 10,550 euros, with a drop of 25.9% compared to Monday’s close.
Grifols rejected the accusations in a document sent to the National Securities Market Commission (CNMV), in which he described them as “false information and speculation” and assured that all the transactions reported by Gotham were explained to the regulators and they are included in the audits, which endorse them.
“The company does not understand the different interpretation of Gotham City Research unless the only thing it intends, as a short-term fund that it is, is to make the share price go down, as they themselves reflect on page 2 of the report, to obtain profits”. In total, the report wiped 2.2 billion from the company’s value yesterday.
Gotham specializes in short-selling trades, which profit from the drop in stock value it causes with reports. The firm informed the CNMV on Monday that it had opened a short position in Grifols equivalent to 0.57% of its capital, which on Monday was equivalent to 51 million euros. At the lows of the session, the firm had recorded a profit of 25 million euros.
“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 statement said. The company is audited by KPMG and Grifols recalled that its auditors “have systematically issued audit reports without exception”. The CNMV assured for its part that it is analyzing the Gotham report. According to the top leader, Rodrigo Buenaventura, “what we have to do from the CNMV is to collect additional information to be able to clarify the situation”.
Gotham City, which exposed Gowex’s accounting fraud in a similar report in 2014, claims Grifols “manipulates” its reported debt and operating profit, or ebitda.
Gotham questions the group’s operations with two companies that own its plasma centers, BPC (Biotest) and Haema, in which it has no shares, but is owned by the family holding, which it consolidates in its accounts. If the profits of the two firms were not included, Grifols’ leverage would be 9.6 times its ebitda compared to the 6.7 times the company declares, because profits would be overestimated by at least 32%.
Another of the operations questioned by Gotham’s report is the consolidation in the accounts of its US subsidiary Grifols Diagnostic Solutions. The firm recalls in its statement that in 2019 it sold a stake in this company to the Chinese group Shanghai RAAS, as part of a share swap, but kept 55% of the economic rights and 60% of the rights to vote, so that “it maintains operational, political and economic control of GDS, which is why the entities continue to consolidate”.
Gotham also questions the high price paid by the company for some of the companies acquired in recent years.
Gotham also questions the role of the group’s new executive chairman, Thomas Glanzmann. According to the firm, “the chairman is being hailed as a change of direction, but he has been at Grifols since 2006 and on the board when the suspicious transactions we describe in our report took place. We find him in a position of conflict and a Grifols in everything but the name”.
The company’s board was meeting in an extraordinary session at the close of this edition, to analyze the adoption of additional measures against Gotham City Research. The firm also announced that it will issue new information today refuting other aspects of the report’s conclusions.
Stock market analysts who cover Grifols greeted the report with skepticism, with some saying the fund’s accusations were not new. “Nobody who knows history should be surprised,” wrote Patricia Cifuentes, an analyst at Bestinver Securities, adding that off-balance sheet debt is well known. Álvaro Arístegui, from Renta 4, also expressed his disagreement, pointing out that “the report is generally inaccurate, exaggerated and extremist in many of the arguments, in addition to being interested in the issuer’s bearish position”.
The situation of Grifols even reached the press conference of the Council of Ministers. In response to journalists, the Minister of Economy, Trade and Enterprise, Carlos Cuerpo, called for “prudence” and to wait for what the CNMV can say “to have a clearer vision” of the situation.
The CEO of Borses y Mercats Españols, Javier Hernani, also warned that it is “very early” to draw conclusions, because more information is needed to check whether Gotham City’s opinion “is or is not true”.
