The shares of the blood products manufacturer Grifols fell yesterday morning by up to 50% on the stock market after the bearish hedge fund Gotham City Research published a report in the early morning accusing it of hiding its real debt and concealing its accounts, which led him to give a zero value to his shares. After a very volatile session, in which the shares fell to 7.41 euros, breaking the lows of the last ten years, the titles subsequently rose 42.3% from those levels and closed at 10,550 euros, with a drop 25.9% compared to Monday's close.
Grifols rejected these 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.
“The company does not understand the different interpretation made by Gotham City Research unless the only thing it intends, as a short-term fund, is to lower the share price as they themselves reflect on page 2 of their report, to obtain benefits.” In total, the report yesterday wiped 2.2 billion from the company's value.
Gotham specializes in short selling operations, which make a profit from the drop in the value of the shares that they cause with their 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 allegations of erroneous accounting practices or reporting of 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 qualifications.” The CNMV assured for its part that it is analyzing the Gotham report. According to its top leader, Rodrigo Buenaventura, “what we have to do from the CNMV is gather additional information to clarify the situation.”
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.
Gotham questions the group's operations with two companies that own its plasma centers, BPC (Biotest) and Haema, in which it does not have shares, but rather are owned by the family holding company, which it consolidates in its accounts. If the profits of these two firms were not included, Grifols' leverage would be 9.6 times its EBITDA compared to the 6.7 times declared by the company, since its profits would be overestimated by at least 32%.
Another of the operations that Gotham's report questions 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 that company to the Chinese group Shanghai RAAS, within the framework of a share exchange, but maintained 55% of the economic rights and 60% of the voting rights, way that “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 CEO, Thomas Glanzmann. According to the firm, “the president 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 described in our report occurred. We found it in a position of conflict and a Grifols in everything except the name.”
The company's board was meeting in extraordinary session at the time of going to press, 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 analysts covering Grifols greeted the report with skepticism, with some saying the fund's accusations were not new. “No one who knows the story should be surprised by this,” wrote Patricia Cifuentes, an analyst at Bestinver Securities, adding that the debt was balance is well known. Álvaro Arístegui, from Renta 4, also expressed his disagreement, pointing out that “we find the report generally inaccurate, exaggerated and extremist in many of its arguments, as well as self-interested given the bearish position of its issuer.”
Grifols' situation even reached the press conference of the Council of Ministers. The Minister of Economy, Commerce and Business, Carlos Body, asked by journalists, asked for “prudence” and to be “waiting” for what the CNMV may say “to have a clearer vision” of the situation.
The CEO of Bolsas y Mercados Españoles, Javier Hernani, also warned that it is “too early” to draw conclusions, since more information is necessary to verify whether Gotham City's opinion is “truthful or not truthful.”
