(Bloomberg) -- For Spain’s billionaire Grifols family, which turned a blood-collection business into one of the world’s largest medical fortunes, Brookfield Asset Management’s plan to take its troubled eponymous company private had been a way to turn it around — far from the glare of markets.
But the New York-based money manager on Wednesday walked away, and the family said it won’t back another such deal. Now, all the issues that have dogged Grifols SA over the last few years are front and center again — everything from a short seller’s accusations of poor governance, lack of transparency and questionable asset shuffles to the company’s debt-fueled acquisition binge and concerns about a potential cash crunch.
“Some investors are likely to ask the question of how Grifols intends to address its out-year debt now that a potential take private deal is off the cards,” said Charles Pitman-King, vice president of European pharmaceuticals equity research at Barclays. “Whilst those are not near-term overhangs, they are sentiment overhangs.”
Grifols shares fell as much as 14% in Madrid on Wednesday, the biggest intraday decline since Feb. 29, after Bloomberg reported that Brookfield was dropping its bid. They traded about 3% lower in early trading on Thursday.
The asset manager had made an indicative offer that valued Grifols at €6.45 billion ($6.8 billion), which was seen by minority shareholders as “low-balling” and was rejected by the company’s board. Brookfield, whose talks were disclosed publicly in July, had been looking to take the company private in partnership with the Grifols family, which owns about 35% of the maker of medicines for diseases such as hepatitis and hemophilia.
The firm’s decision to abandon its bid was in no small part because it clashed with the family and in effect sought what in the M&A world is called a “gracious exit” by making an offer the board could not accept, people familiar with the matter said. A spokesperson for the family said it couldn’t agree with the price Brookfield was offering.
The fund was also not getting the information it needed in going over the company’s books, the people said, declining to be identified discussing information that isn’t public.
Four months after disclosing the talks, Brookfield was still waiting for information about related-party transactions to complete its due diligence, Bloomberg reported in early November. Grifols had not yet provided that information by Nov. 19, when the asset manager published its indicative offer. In regulatory filings, Brookfield cited “extensive due diligence” and the board’s rejection for its decision to walk away. It declined to comment further.
In a statement late yesterday, Grifols said it had given Brookfield access to all information requested to draw up an informed valuation. It will soon announce a Capital Markets Day to present its strategy, the drugmaker said in a statement.
A potential Brookfield deal would have left the family with its ownership diluted, but it would have still given it a significant say in a business started in Barcelona by José Antonio Grífols Roig more than a century ago.
That said, the family’s executive control over the group has been waning for some time now.
When Victor Grifols, the founder’s grandson, presented his successors to the world in November 2016, he had no way of knowing that their tenure would be short-lived. After having led the family business through a public listing and an aggressive international expansion, Victor was passing the torch to his son, also called Victor, and brother Raimon, who were set to become co-chief executives the following January.
“The Grifols have in their blood a tradition that has been passed down from generation to generation,” he wrote in Capitans d’Industria, a book about Catalonia’s major fortunes that was released at the time.
But after a chaotic period during the pandemic, blood collection dwindled and the massive debt load from the company’s acquisition binge came into sharp focus. The two family members were shunted off to other executive roles in 2022, when the board appointed private equity veteran Steven Mayer as the company’s first non-family CEO.
That did little to stop New York-based short seller Gotham City Research LLC from accusing Grifols in January of questionable governance, lack of transparency, moving assets to a family holding company and manipulation of debt and profit numbers. Haema and BPC, two businesses Grifols acquired in 2018, are owned by Scranton Enterprises BV, an investment vehicle controlled by former company executives, including family members. Gotham said the transfer meant none of the revenues at the two companies were available to Grifols or its creditors.
Grifols has rejected the accusations and sued the short seller in a New York court. Spain’s National Court said on Nov. 19 that it would investigate Gotham for allegedly releasing “biased and deceptive” information about the firm.
Soon after the Gotham report, Victor and Raimon stepped down from their executive positions, remaining only as proprietary directors along with Albert Grifols Coma-Cros, the company’s former chief scientific innovation officer. Grifols introduced management changes, appointing a new CEO, Nacho Abia, and a new chief financial officer, Rahul Srinivasan, Bank of America’s former head of leveraged finance and capital markets for EMEA. In September, Grifols accelerated a plan to cut Chairman Thomas Glanzmann’s executive powers to mark a clear separation between the board and daily management.
Now, as the company and the family look to move on from Brookfield, questions raised in the Gotham report are surfacing again.
“Whilst I don’t think a full cleanup is necessary for the shares to start to work, I believe the ongoing relationship between Grifols and Scranton following the publication of the Gotham City short seller report will remain a sticking point before any long term investors consider becoming interested in the story,” Pitman-King said.
Grifols stock is still a third lower than it was before the report, despite quarterly earnings that have met analysts’ expectations.
At the end of the third quarter, the company’s debt — including leases — stood at €9.2 billion. And although Grifols’ leverage has gradually improved, the company’s ability to generate cash remains a key issue, especially after it spooked analysts with its free cash flow guidance for 2024 of a measly €5 million.
Grifols received $1.7 billion in proceeds in June from a sale in China, which combined with private credit placements was used to repay debt due in 2025. Still, the firm may struggle to repay €300 million in bonds in March 2025 and other liabilities, Alantra analyst Alvaro Lenze wrote in a note to clients on Wednesday.
“Even if cash flow generation improves, it will not be enough to meet the maturities and repay the revolving credit facility, so Grifols is fully reliant on banks’ support,” he said. “We think the banks may not be supportive.”
--With assistance from Dinesh Nair, Irene García Pérez and Macarena Muñoz.
(Updates with statement from Grifols in ninth paragraph, shares in fourth.)
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