(Bloomberg) -- Spanish blood plasma firm Grifols SA tumbled after short seller Gotham City Research LLC published a report criticizing its financial reporting.
The stock sank 33% after a delayed start to trading in Madrid and its bonds also slumped. The company, which now has a market value of €5.8 billion ($6.3 billion), saw heavy trading, with its stock volume about 12 times the daily average.
Gotham City, run by Daniel Yu and Cyrus de Weck, released a report on Tuesday, saying the stock market “appears to fundamentally misunderstand the company.” The report claimed that Grifols artificially reduced leverage by consolidating earnings of units it doesn’t control and overstated profit.
Grifols rejected the allegations, saying Gotham’s report contained “false information and speculations.” “The related party transactions and disclosures reported by Gotham City Research have been fully disclosed and audited since 2018 and reported to the Spanish regulator,” the company said in a regulatory filing.
Analysts who cover Grifols viewed the report with some skepticism, with some saying that the fund’s allegations weren’t new.
“No one who knows the story should be surprised by this,” wrote Patricia Cifuentes, an analyst at Bestinver, adding that she’s been adjusting the company’s leverage ratios for years and the off-balance sheet debt is well known.
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The stock fell as much as 43% at the start of trading and pared losses later in the day. The company’s €1.4 billion notes due in October 2028 fell 5.1 cents on the euro to 85.7 cents, the biggest decline since the bonds were sold in 2021, according to Bloomberg pricing source CBBT on Tuesday morning.
The bonds recovered slightly after Bloomberg News reported that Grifols is planning to repay its €1.84 billion ($2 billion) of bonds due in 2025. The company would using its existing cash and money from selling a stake in Shanghai RAAS Blood Products Co., according to a person familiar with the matter, who asked not to be identified discussing private information. A Grifols representative declined to comment on the repayment plans.
Gotham City Research is the publishing arm of General Industrial Partners, a hedge fund that launched when Gotham City and short selling fund Portsea Asset Management combined.
Last year, the firm targeted French electronic price-tag maker SES-Imagotag. The stock has fallen about 24% since Gotham’s report.
Gotham City said Grifols’s financial statements include earnings from BPC Plasma and Haema, which are owned by Scranton Enterprises NV, an investment vehicle for the Grifols’s founding family and a group of former executives.
After it bought Haema and BPC in 2018, Grifols sold the two businesses to the family office in a deal that the company said “would not result in a loss of control.” Gotham says that because of this transfer, none of the revenues of the two companies are available to Grifols or its creditors to service debt.
Banco Santander SA analyst Jaime Escribano countered the concerns about Grifols’s finances in a note writing, “there is no misleading information that we were not aware of.” He also noted that the Shanghai RAAS Blood Products stake sale of $1.8 billion should help underpin the company’s finances.
Spanish securities regulator CNMV is currently analyzing the Gotham report and is in contact with Grifols for additional data, a spokesperson said in response to Bloomberg questions.
The Spanish company has long faced concerns about its business and strategy for growing through debt-funded deals. The stock soared in the decade to 2020, but has since plunged by about 70% since the peak.
--With assistance from Joe Easton.
(Updates to add Spanish regulator response and bond repayment plans.)
©2024 Bloomberg L.P.
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