(Bloomberg) -- Investors in Grifols SA are set to press the company on corporate governance issues and questions about the billionaire family that controls the firm at a meeting Thursday after its shares suffered their biggest single-day drop from a short seller’s report this week.

The Spanish company, which is due to hold a call at 2:30 p.m. CET, will face questions such as the Grifols family’s involvement in strategy and operations and dealings with an investment vehicle linked to them, after hedge fund Gotham City Research LLC released a report accusing the firm of massaging its financial reporting data by inflating profits and presenting the blood plasma maker as less leveraged than it is.

While Grifols has already rejected the allegations and investors have mostly pushed back against Gotham’s findings, its dealings with Scranton Enterprises BV — a firm controlled by former executives including some family members — need further explanation, according to several investors contacted by Bloomberg. 

Shares of Grifols declined Thursday as much as 7.9%, after they rebounded 12% on Wednesday following the previous day’s record 26% plunge. The stock remains 23% down since Gotham’s report.

Gotham, a New York-based hedge fund, said Grifols’ accounting was deceptive because it included revenues from units it doesn’t control, including those owned by Scranton. It also accused the firm of poor governance, pointing to ties between Grifols’ current Chief Executive Officer Thomas Glanzmann and the family office, which invests in his venture capital firm.

“Regaining trust is complicated since it is a company where doubts regarding debt sustainability have been very important for a long time,” said Gonzalo Lardies, a senior equities fund manager at Andbank. “It will have to be the news of business evolution and margin recovery that changes the perception of the company. Turning around the governance problems is complicated.”

The owner of Gotham City slashed its short bet against Grifols during Tuesday’s selloff to 0.06% from 0.6%, with the price recovery also suggesting short covering.

This is not the first time that Grifols, a business that’s over a century old, has been accused of bad governance. Tuesday’s report threw a light on ties that the company wanted to leave behind after naming a CEO in 2022 who is not a member of the family.

Analysts on the stock were inundated by inquiries from investors after the shares fell as much as 43% on Tuesday. Still, most brokers have been unwavering in their support for the Barcelona-based firm, with no changes in recommendations except for one broker who placed the stock “under review” after the report was published. Overall it has 19 buy calls, versus five hold and one sell, according to ratings compiled by Bloomberg.

“Based on our investor discussions, I think people are concerned about how the management team will outline its message on the call later today and whether they will confirm the need to simplify its accounting, improve transparency and bring it into line with best-practice methods,” said Barclays Plc analyst Charles Pitman on Thursday. Pitman also wrote in a note Wednesday on the risks that a divestment deal with China’s Haier Group falls through and the potential impact from a regulators’ review.

Accounting Questions

Grifols may also face questions over whether management plans to hold roadshows with investors to assuage the concerns, and whether there are plans to simplify its accounting to bring it into line with best practice methods, Pitman added.

While very aggressive, the company’s way of reporting and adjusting Ebitda is not uncommon among junk bond issuers, according to several high-yield investors contacted by Bloomberg. While Grifols has said the accounting treatment given to deals such as the sale of Haema and Biotest Pharmaceuticals Corp. to Scranton was fully endorsed by auditor KPMG, such related-third party transactions deserve further explanation, some of them said. 

An update on the timing of the closure of its stake sale in Shanghai RAAS Blood Products Co., and when the company will receive the proceeds so it can repay bonds that mature in 2025, are other points management should address on the call, according to fixed income and equity investors.

Grifols pushed back on the allegations with a second regulatory filing on Wednesday, saying the transactions mentioned in the report were recorded and presented to authorities in Spain and the US. 

The company also said its board fully backs CEO Glanzmann, after Gotham questioned his independence from the family that controls Grifols. In a statement, it threatened legal action against Gotham “for the significant financial and reputational damage” done to the company and its stakeholders.

“Eventually this note would not be that bad if it triggered some needed changes in communication, in its funding criteria and in how the interests of free-float shareholders are protected,” Mirabaud analyst Jose Ramon Ocina said in a report. “Grifols must react accordingly.”

--With assistance from Abhinav Ramnarayan.

(Updates with share move in fourth paragraph.)

©2024 Bloomberg L.P.