(Bloomberg) -- Grifols SA’s board recommended that shareholders reject Brookfield Asset Management’s indicative offer, which values the Spanish drugmaker at €6.45 billion ($6.8 billion).
The offer “significantly undervalues the company’s fundamental prospects and its long-term potential,” Grifols said in a regulatory filing on Tuesday. The asset manager’s disclosure was a tentative, non-binding indication requested by the Spanish regulator following media reports.
The Grifols family, which owns about a third of the company, and Brookfield have been in talks since July to take the drugmaker private. Brookfield has been waiting for the company to supply information about related-party transactions to complete due diligence and assess the value of the business, Bloomberg has reported.
“We now know that the company would not accept an offer at this level,” Oddo BHF analyst Juan Ros-Padilla said in a note to clients. It’s “now more likely” that Brookfield will abandon the deal, Ros-Padilla wrote.
Grifols shares closed 4.8% down Tuesday, after Brookfield disclosed that it had signaled a price of €10.5 per Class A share of Grifols and €7.62 per Class B share. Brookfield has said talks with Grifols are continuing and that no decision had been reached regarding a potential offer.
The stock has lost a third of its market value this year. In January, Gotham City Research accused the company of manipulating its debt and earnings through dealings with its second-largest shareholder, Scranton Enterprises BV. The shares also dropped in February after management surprised the market with lower-than-expected forecasts for free cash flow.
Meanwhile, investors have been preparing to push back against a low-ball offer. A group holding 7.7% of the company’s capital have demanded a seat on the board of Grifols to protect minority shareholders’ interests. New York-based Mason Capital Management, which is leading the campaign, has claimed the Grifols family and board are exploiting their mismanagement of the firm to bring down the price of a potential bid, to the detriment of minority shareholders.
Brandes Invesment Partners LP, meanwhile, has built a 13.5% stake in the Class B shares, betting that Brookfield’s offer price would converge with A shares, which trade at a premium as they carry voting rights. A bid with different prices for the Class A and B shares would require a change in bylaws, which would have to be approved at a shareholders’ meeting.
Brookfield is also in discussions with a group of banks over a debt package to back the take private deal. Grifols has around €8.5 billion of bonds and loans, according to data compiled by Bloomberg. If the buyout is successful the take-private will trigger a clause that allows bondholders to demand that the debt be paid back early, and above par.
--With assistance from Jonathan Roeder, Catherine Larkin, Macarena Muñoz and Thomas Gualtieri.
(Updates with analyst comment in fourth paragraph)
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