Gotham City allegation wipes $3.8bn off Grifols’ value

Madrid/Barcelona — Grifols shares fell by more than 40% on Tuesday, wiping $3.83bn off its market value, after hedge fund Gotham City Research questioned its accounting, prompting the Spanish drugmaker to “categorically” deny any wrongdoing.

Gotham questioned Grifols reported debt and earnings before interest, taxes, depreciation and amortisation (ebitda) which reduces its leverage ratio. It said the leverage ratio is close to 10 to 13 times ebitda, rather than the six times reported by Grifols, which makes drugs with human plasma.

Spain’s CNMV market regulator said it was analysing Gotham’s report and it was in contact with Grifols, from whom it would collect “the necessary data”.

Grifols said in a filing to the CNMV that the Gotham report was “false information” and “speculation” and that it has disclosed all information about all the transactions raised “with the highest level of integrity and transparency”.

Board member Tomas Daga, who sits on Grifols’ audit committee, said it was in Gotham’s interest for the company’s share price to fall.

He cited Gotham’s report, which says it and its partners hold short positions of over 0.5% in Grifols, meaning the fund stands to profit in the event the issuer’s stock declines.

Active short-sellers such as Gotham, which bet on share price falls, can wipe huge sums off the market value of their targets.

Daga said a crisis committee meeting had been held on Tuesday and there would be a board meeting late in the day.

“Our house is clean, we are very sure about that. We will explain it again point by point,” he said. “If someone creates nervousness and confusion, what do you want me to say?”

Shares in Grifols dropped 42% at the market open and were down 28% in mid morning trading in Madrid.

KPMG, which audited Grifols’ 2022 accounts, did not respond to requests for comment.

Shorts

Gotham was founded by Daniel Yu and focuses on “due diligence-based investing”. On its website, it said it has long or short positions in the companies it reports on.

The fund has targeted online advertising company Criteo and Apple-supplier AAC Technologies and more recently French smart labels maker SES Imagotag.

Another target, Let’s Gowex, later filed for bankruptcy.

Last year, another short-seller Hindenburg Research triggered a $150bn sell-off in Adani Group shares, even though the Indian company denied any wrongdoing. Last week, India’s Supreme Court said the group does not need to face more investigations beyond current scrutiny by its market regulator.

Grifols shares have swung widely over the past few years as the company, the market value of which peaked at €20.75bn in February 2020, was hit hard by the pandemic when plasma collection was restricted. Before the Gotham report, Grifols’ A and B shares had a combined market value of €8.7bn.

The company has sought to reassure investors with cost-cutting measures and a leadership change, boosting its shares by 43% in 2023. By the end of 2023 it sold a 20% stake in Chinese unit Shanghai RAAS for $1.8bn to cut its debt.

Grifols’ October 2028 bond, which pays a 3.875% coupon, fell sharply after Gotham’s report, down 7.8c on the day at 82.98c on the Marketaxess platform.

Reuters