Short seller Gotham City Research is aiming at an already battered target. On Tuesday, the hedge fund knocked up to 42% off Grifols’ (GRLS.MC) $10 billion market capitalisation after it released a report alleging that the Spanish pharma company has more debt than what it has reported. Gotham claims Grifols has manipulated its leverage ratio through “deceptive” and “incorrect” treatment, namely consolidating earnings from companies it does not control into its financial statements. Grifols categorically denied the allegations on Tuesday, saying it had disclosed relevant information “with the highest level of integrity and transparency”.
Still, Grifols was already struggling with multiple ailments. Even before Gotham’s attack, the company’s shares were down over 50% from pre-pandemic levels, as demand for its drugs, which are made from human plasma, has waned. Grifols’ reported 9.2 billion euros of net debt in 2022, over 7 times its annual EBITDA, is also a cause for concern. Larger rivals like AstraZeneca (AZN.L) operate with less than 2 times debt to EBITDA. Even if CEO Thomas Glanzmann proves there is no basis to Gotham’s allegations, the company’s pre-existing poor health should be enough to turn investors off. (By Aimee Donnellan)
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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own)
