Gotham City Research, the analytics firm that accused the Catalan pharmaceutical company Grifols of accounting manipulation earlier this year, has released a new four page report that again questions the link between the Ibex-35 listed company and Scranton, a entity tied to the Grifols family that serves as the second largest shareholder with an 8.6% stake.
In the latest document, Gotham concedes that Grifols answered several questions raised in its initial report published on January 9. The American firm notes approval of leadership and board changes that removed Victor Grifols Roura, the former CEO and chairman. Yet Daniel Yu and his team insist that some concerns remain valid and deserve attention.
The bearish research house continues to raise questions about the relationship between Grifols and Scranton and their accounting practices. The report highlights that Grifols has hired Baker McKenzie to conduct an independent review of the companys management, yet it criticizes the firm for not specializing in accounting and finance. It asks whether Grifols is willing to hire a true independent accounting firm to examine its commercial dealings and accounting practices and to publish those conclusions.
Grifols representatives say they have clearly stated their position from the start and have provided all information required by the regulator. In a material event filed with the National Securities Market Commission, they added that Gotham is spreading malicious and misleading insinuations aimed at destabilizing Grifols and sowing doubt among investors and institutions. The Grifols Board reiterates its commitment to transparency, integrity and ethical conduct.
The Catalan company points to the legal action it has filed in the Southern District Court of New York against Gotham and its founders. In this complaint, Grifols emphasizes the profit motive behind Gotham’s reports, noting that short positions are taken via the General Industrial Partners hedge fund before publication and asks the court to issue a restraint on releasing new documents.
Accounting practices
The second Gotham City Research report delves into the businesses linking the Grifols holding associated with the family and the company itself, and how those dealings appear in the annual accounts. The firm writes that Grifols and Scranton consolidate the same assets simultaneously. Are lenders aware of this accounting treatment?
The investigators also reference the regulator and note that the CNMV was informed that the Grifols management described two concrete collaborations with Scranton: the rental of Grifols headquarters since 2012 and the 2018 acquisitions Haema and BPC. The report asks if these are the only ties between Grifols and Scranton and whether the CNMV will pursue those questions further with its ongoing inquiry.
Gotham casts doubt on who operates behind Scranton, quoting Grifols submission to regulators in 2011 that the founder family controlled 70 percent of Scranton, while in a investor meeting Grifols claimed a stake below 20 percent without disclosing whether control exists and to what extent the company would exert influence.
Cross loans between Grifols and Scranton
The report also addresses cross loans between Grifols and its principal shareholder Scranton. The American firm accuses Grifols of omitting from its financial statements a loan advance to Scranton made in 2021, which instead appears as a liability increase on the holding companys accounts. It questions the exact amount Grifols lent to Scranton in 2021, the terms, and the applicable interest rate attached to that liability.
In addition, Gotham calls for a detailed explanation of a loan granted by Grifols to its top shareholder for the Haema and BPC acquisitions, reported in the accounts as long-term loans to related parties totaling 113.4 million euros and a cash outflow to related parties exceeding 321 million by the end of the first half of the previous year.
Grifols stock drops
Shares of the pharmaceutical group opened lower in Spain after Gotham released its report just before 9 a.m. In the first hour, Grifols stock fell about 6.5 percent without a formal response from the company to the fresh questions raised by the short seller. Meanwhile, the Ibex-35 remained near the 10,000 point threshold, a level not seen since the pre-pandemic period and a benchmark to measure market resilience.