Grifols lost more than 40% of its value in a year

Rarely in the history of Capricorn has there been a depreciation like the one that occurred in Grifols in 2024.. It is true that the company had been showing clear signs of weakness for several months prior, weighed down by massive debt and rising prices for its key raw material, plasma, which had depressed its profits. However, both the brutal attack on the Gotham stock market and the disruption of Brookfield’s takeover bid… had an impact that caused 41.3% of the company’s value to evaporate in eleven months.. Both facts are based on the lack of transparency of the pharmaceutical company and the management of the founding family and its investment vehicles, which do not inspire sufficient confidence in the markets. But let’s take it piece by piece.

1. Assault on Gotham City

Grifols’ trials began on January 8, 2024. A Gotham City bearish firm has released a scathing report to the public calling into question the company’s financial health. First of all, he pointed out that the family deliberately distorted reports and concealed various transactions related to the investment vehicles of the saga, in particular the Scranton estate. The organization, led by Daniel Yu, directly accused the company of misrepresenting EBITDA through the double consolidation of Haema and Biotest, as well as lying with the real debt figure of 920 million euros. The doubts that arose were so great that the National Securities Market Commission, by virtue of its position, began to investigate the accounts of the company producing derivatives.

2. CNMV investigation

The first investigations by the Spanish regulator did not bring optimism to Grifols. It found “material deficiencies” in the scales Gotham specified, i.e. debt and EBITDA, and gave the company fifteen days to restate its accounts. When the pharmaceutical company applied the CNMV recommendations, the result was a financial debt of 10.527 million euros, compared to 9.416 million in the previous calculation. The main differences amounted to €234 million due to “extraordinary, unusual or non-recurring expenses, as well as cost savings and operational improvements for the next 12 months.” And on the other hand, “exclusion of expenses and debt corresponding to leasing (rental of real estate for plasma donation centers) for a total amount of 1.111 million euros.” This happened thanks to an agreement with Inmunotech and the company’s centers in the United States, leased by Grifols. However, the CNMV saved Grifols by guaranteeing that the formula she used to submit the reports was not incorrect, something she would clarify months later.

3. Accounts without an auditor

Although the company adjusted the figures at the request of the CNMV, the presentation of the annual results was another seminal moment in the recent history of Grifols. The firm submitted its figures to regulators without auditor support, triggering another of the stock market’s biggest falls. And at that time, trust in the company was in question due to recent events.

4. Change at the top

Another consequence of the Gotham Report was the radical change of the board of directors of a Catalan pharmaceutical company. A month after its publication (although the decision was officially announced back in May), the entire executive power of the Grifols family disappeared. The year began with Victor and Raymond Grifols becoming co-CEOs of the pharmaceutical company, but Daniel Yu’s allegations caused a domino effect at the top, leaving the entire family as spectators. “As of today, May 31, 2024, directors Victor Grifols Deu and Raymond Grifols Roura ceased to be classified as executive directors, as they ceased to perform management functions in the Company, and from June 1, 2024, they were assigned the category of their own directors,” the statement said , sent to the CNMV. Likewise, another family member on the board of directors, Albert Grifols Coma-Cross, also became his own shareholder. Thanks to these changes, the regeneration process at the top of the pharmaceutical company was almost complete. Previously, on April 1, Nacho Abia, who is currently the top executive after losing the executive nature of the presidency, was appointed as the new CEO of the firm.

5. The case of sanctions

Let us now allow ourselves a small time jump into the annu horribilis that Grifols experienced before moving on to the chapter on takeovers. The CNMV, which initially covered Grifols, opened a disciplinary case against him in September. The regulator charged the company with a possible very serious continuing offense for providing regulated financial information with inaccurate or misleading data in its consolidated annual financial statements for 2021, 2022 and 2023. A file that appeared to be approved by the Gotham Report, this was not the case as Daniel Yu also faced another very serious charge of manipulating the market using fictitious data to make money. In fact, the Anti-Corruption Prosecutor’s Office also sued Gotham before the National Court and Judicial Authority accepted the complaint.

6. Brookfield Appears

In the midst of the chaos at Grifols, the Brookfield fund arrived with the intention of taking almost 69% of the firm’s capital in an operation with the connivance of the founding family, which owned 31% but had already lost everything. executive branch in July. The Canadian enterprise requested the company’s books to examine the details of the business, and at the same time began searching for other investment partners and banks to be able to refinance some of the company’s debt due in the short term. For nearly five months, Brookfield evaluated the operation, and Grifols appointed a special committee that also made recommendations on it.

7. The proposal is ruined

The Canadian fund finally made a potential offer on November 19 at a price of 10.5 euros per share, 22% higher than the price of the securities on the day Brookfield’s interest became known (July 8), but this value was lower than the price at which the shares were trading earlier that day. This led to the Transactions Committee being inclined to reject the proposal, as the Board of Directors suggested a few hours later. The company’s refusal led the Canadian fund to decide to abandon the operation days later, resulting in another loss of nearly 20% in the share price.

8. So what now?

Following Brookfield’s refusal, the company now faces challenges related to debt that falls due during 2025. The earliest date is February 15 next year, when the senior guaranteed bond, with a face value of 905 million and an interest rate of 1.625%, will mature. The second loan consists of a revolving line of 1,000 million due in November next year, of which 625.48 million has already been disbursed.