The “short seller” who brought down Gowex in 2014 caused a tidal wave yesterday by claiming the pharmaceutical company is hiding debts. The Catalan group denies the accusations and its shares collapse by almost 26%.
Grifoliworld leader in drugs derived from blood plasma, was involved yesterday in a stock market storm after what Bearish investor Gotham City Research will accuse the Spanish company of irregularly hiding debts and will value its shares at zeroeliciting a harsh response from the Catalan pharmaceutical company, which accused the short seller spread “lies” for one’s own benefit.
THE Grifols action on the stock exchange was penalized, but without reaching the extremes suggested by the investment body, known in Spain because in 2014 it caused the collapse of Gowex. Stocks initially fell 42% on the day and ended down nearly 26%closing at 10.55 euros on the Spanish market. The group’s capitalization stands at 6,400 million, 2,200 million less than the day before yesterday. On Wall Street, the company’s stock certificates (ADR) fell nearly 22% yesterday.
Alleged manipulation
The dizzying correction originated from the publication of a report, before the market opened, in which Gotham City claimed that Grifols used the Scranton corporation (linked to the Grifols familywhich owns over 30% of the pharmaceutical company) “manipulate your debt and EBITDA”. The company founded by Daniel Yu understand that The group’s real debt/EBITDA ratio would be double what was admittedthey should correct their accounting practices.
Initially, with the stock market unable to cope with the flow of orders to sell stocks, Grifols released a statement calling Gotham’s allegations “false.”and stressed that the operations included in the report are already explained in the accounts submitted to the regulators.
Grifols explains this in its latest financial report In 2018 it sold the companies BPC (Biotest US Corporation) and Haema to Scranton Enterprises for $538 million. For this purpose, this company has signed a $95 million loan with Grifols Worldwide.
The problem, according to Gotham, is this both Grifols and Scranton continue to consolidate BPC and Haema, “misleading and unfair treatment”. KPMG, the company’s auditor, raised no questions about the matteralthough two years ago he had questioned another agreement between the company and GICthe Singapore fund, something the bearish investor remembers in his report.
If Grifols stopped consolidating the two companies in question, there should be a strong reduction in gross operating profit (ebitda) of more than 30%, which would trigger net financial leverage. In this sense, the company’s liabilities would increase between 10 and 13 times the gross operating profit (ebitda); until reaching values between 8.9 and 9.7 billion.
But in addition to the sale of BPC and Haema, Gotham lists in its report – which it claims to have prepared over nine months – another long series of possible irregularities or suspicious transactions. These agreements it would imply an increase in net financial leverage of approximately 900 million euros.
Dutch accounts
Much of the Gotham doc is based on Pearls of Scranton, company based in the Netherlands. For example, he explains it The 8.6% stake held in Grifols was financed with a loan from BNP Paribas with a guarantee of treasury shares. The American investor emphasizes that, in order not to violate the conditions of this loan when the price of the pharmaceutical company fell, another family-owned business lent money to Scranton.
It should also be noted that the law firm Osborne Clarke, legal advisor to Grifols, granted a small loan of three million to Scranton at the end of 2021refunded a few weeks later.
Other operations that are not broken down, according to Gotham, are some guarantees from Grifols in Shanghai Raas and the use of invoices to customers for financingsomething he did in his time NMC Healtha London-listed company that went into liquidation following an attack by the short sellers.
Also The payment of 124 million by Grifols to Inmunetek to develop new plasma centers is under discussion. The bearish company also shows photographs of these structures to prove that they cannot have cost that money.
Regarding the change of presidency of Grifols, which he now occupies Thomas GlanzmannHe short seller Recall that this executive has been on the board for several years and was present when the transactions in question occurred.
Gotham ends it “The recent transaction with Shanghai Raas confirms our belief that Grifols’ debt acquisition strategy was a failure and that the company’s true financial leverage is much worse than previously thought.”
Before publishing its report, Gotham had shorted 0.57% of Grifols through British fund General Industrial Partnerswhich allows you to take advantage if the price drops.
Detailed replica
During the afternoon, Grifols held an extraordinary board of directors and subsequently released a detailed note to deny the accusations. The multinational underlined that all the information is contained in public documents sent to the regulatory authorities of Spain and the United States accused Gotham of publishing false information for its benefit.
As for the main plot of Gotham, which focuses on the operation with Haema and BPCGrifols emphasized that, After the sale to Scranton, it assumed management of these assets and a 30-year plasma supply contract.. Furthermore, this agreement included a purchase option in favor of Grifols exercisable at any time.
Grifols has ensured that it can consolidate these assets according to current legislation. “The sale of the entities does not result in a loss of controlwhich is why entities continue to consolidate, recording as a capital transaction without any impact on the consolidated income statement“said the pharmacist.
In this sense, The multinational recalled that the accounting treatment of these operations was verified by KPMG and reported to the Spanish regulatory authority. Furthermore, it was the subject of a request for information, which was responded to on 14 January 2019.
2024-01-10 00:59:43
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