On Tuesday, 9 January, Grifols SA (GRLS.MC) watched its shares drop by more than 40% after Gotham City Research, a hedge fund, raised concerns about the company’s accounting practices. After unequivocally asking the pharmaceutics manufacturer to deny any misconduct on its part, Grifols lost $3.83bn of its market value.
Grifols shares plunge after criticism by Gotham
Questioning reporting on its debt and earnings before interest, taxes, depreciation and amortisation (EBITDA), Gotham alleges misrepresentations in this regard to reduce the Grifols leverage ratio. The hedge fund further stated that the actual leverage ratio is about 10 to 13 times the EBITDA, instead of the six times reflected in the Grifols financial reports.
After the publication of the Gotham statement, the National Securities Market Commission or CNMV, Spain’s financial watchdog for their securities market, indicated it is evaluating the Gotham report and contacted Grifols for the collection of the needed data. According to Reuters, Grifols stated in a CNMV filing that the Gotham report was untrue and conjecture.
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Reportedly, Tomas Daga, a Grifols board member sitting on the company’s audit committee, told Reuters Gotham pushed its own interest by ensuring a price share drop. Short sellers, such as the Gotham hedge fund, often stake their bets on share price plunges, which invariably have significant impacts on market values.
Daga further indicated that the company called an emergency meeting on Tuesday to address the issue. Reuters quoted him as saying:
Our house is clean, we are very sure about that. We will explain it again point by point. If someone creates nervousness and confusion, what do you want me to say.
