Grifols defends himself. The Catalan pharmaceutical company will take legal action against Gotham City Research over the report that caused the company to crash on the stock market this Tuesday and caused 2.2 billion euros to disappear from its capitalization in a single day. The document, in which the pessimistic fund accused the company of manipulating its accounts to hide debts and that their real value was zero, had “caused significant financial and reputational damage,” Grifols firmly defended in a statement this morning the integrity of its accounts and supports the management of CEO Thomas Glanzmann.
The accusations of the controversial hedge fund, known in Spain for causing the bankruptcy of the Wi-Fi operator Gowex in 2014, triggered a hurricane in the price of Grifols, which also raged this Wednesday. The stock opened the session after plunging 26% the previous day, with gains of up to 4%; Shortly after, it fell again by almost another 4% and after the announcement that the company would take Gotham to court, the value recovered again in the morning and rose by more than 9% for Grifols. The multinational, which develops drugs derived from plasma and is 30% controlled by the owner family, has decided to take the case to court and, according to the sources consulted, will now look for the most appropriate specific formula to initiate this process.
The offensive against Grifols of Gotham City, a controversial fund that specializes in making deals by betting on stock market crashes, is focused on the company's debts, which it accuses of “manipulating” its financial reports to cover its debts. “artificially” reduced debt by half by increasing operating profit with an accounting maneuver. Specifically, Gotham criticizes as “misleading” the fact that since 2018 Grifols has fully consolidated the results of two companies, BPC Plasma and Haema, in its accounts, even though it sold them this year to Scranton Enterprises, an investment vehicle of the Grifols family that has 8 .4% of the pharmaceutical industry. Thus, the accounts of the two above-mentioned companies are consolidated in the balance sheets of both Grifols and Scranton Enterprises, which has its tax domicile in the Netherlands.
The Catalan company defended its balance sheets with a detailed statement to the National Securities Market Commission (CNMV) yesterday after a meeting of the Board of Directors. This Wednesday he sent another message to the supervisor. Those responsible have scheduled a conference with analysts and investors for tomorrow, Thursday, to explain the situation and stop the stock market downturn. Grifols defends that it is complying with accounting standards because, in reality, it continues to have power over the two companies sold to Scranton by retaining an “exercisable” purchase option and the financial capacity to execute it.
“Therefore, the sale of the companies does not result in a loss of control, which is why the companies continue to be consolidated and recorded as an equity transaction with no impact on the consolidated income statement,” he explains. Furthermore, he claims that the relationship between Grifols and Haema and BPC Plasma is very close. “Under a management agreement, Grifols continues to manage the plasma centers” and “purchases all the plasma obtained in these companies.”
In the second statement published this Wednesday, Grifols has provided further information to refute the investment firm that questioned numerous operations of the multinational Blood Derivatives in its damning report published on Tuesday an hour and a half before the stock market opened. “Immunotek: We find the payment of 124.1 million to Grifos suspicious,” is the title of one of the entries in the 70-page report. And Grifols answers: “The payments of 124 million refer to advances for the construction of the centers.” [de donación de sangre en Estados Unidos] and include both construction and start-up costs until opening. This contract and the accounting treatment have been audited and disclosed in full in our annual financial statements. The value of this agreement corresponds to market prices.”
The company has also publicly expressed support for the management of Swiss CEO Thomas Glanzmann, who has sat on the board since 2006 and served as executive president since last year. “All relevant operations described yesterday in the above-mentioned report have been unanimously approved by the Company's Board of Directors and its various committees and contain all necessary information and supporting documentation, including assessments and opinions of third parties,” concludes the company.
The offensive against Grifols not only reduced the value of the Ibex company; It has also brought to the table the role of funds like Gotham and the strength of public companies' audit controls. Gotham presents itself on its website as a “due diligence fund,” meaning it analyzes a company’s accounts in detail and then takes stakes in it. After that, their strategy is usually bearish, meaning they bet that a value will fall.
In the case of Grifols, the company informed CNMV the day before the publication of its report that it had taken a short position in Grifols equivalent to 0.57% of the capital (2.4 million shares). This means that it borrowed these securities from other investors (which is common practice for large listed companies) to sell them immediately on Monday. To return them, wait for the stock to fall, buy securities in the market at a much lower price and return them with a capital gain. In this Wednesday's CNMV footage, you can see how Gotham has reversed almost all of its short position and is down to 255,000 shares, or 0.006%. From one day to the next, the stock fell by 43% and closed yesterday 26% below Monday's price. The profit lies in this difference. According to Europa Press there could be around 16 million.
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