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Brookfield Asset Management has walked away from an acquisition of Spanish healthcare group Grifols after months of negotiations, sending shares in the short seller target down almost 13 per cent.
Brookfield’s decision to withdraw from talks after indicating last week that it could submit a €6.45bn bid for Grifols piles further pressure on the leading maker of medicines derived from blood plasma.
The Barcelona-based company has been at the centre of one of the biggest corporate controversies in Spain this year, after a report from a short seller in January publicly accused it of artificially manipulating its debt and earnings through transactions with a company related to the company’s founding family.
Canadian asset manager Brookfield announced it was exploring a bid for the company in July, in conjunction with certain existing shareholders with links to the Grifols family. But on Wednesday Brookfield said that “in the current circumstances it [was] not in a position to continue with a potential offer”.
Grifols shares fell almost 13 per cent on Wednesday morning after Bloomberg News initially reported on the breakdown in acquisition talks, sending its market value below €6bn. The company’s shares are trading more than 35 per cent lower than their price before short seller Gotham City Research first published its allegations against Grifols in January.
Grifols earlier declined to comment. It has previously denied wrongdoing, describing the allegations in the short seller report as “false information and speculations”.
A spokesperson for the Grifols family — which own a significant minority stake in the company — said it was “very satisfied and pleased with the support received from the current shareholders”.
“The Grifols family will not support any further transactions,” the family spokesperson added. “The Grifols family believes that the company has great value and will continue to expand as it has done for over 115 years.”
Brookfield’s decision to walk away from a bid presents the latest twist in a saga that has captivated corporate Spain this year. As well as being at the centre of a potential take-private offer, Grifols has recently come under scrutiny from US activist investors pushing for a corporate governance overhaul, while Spanish authorities have also launched a probe into the firms behind the January short seller report.
A person familiar with the talks said that Brookfield had done extensive due diligence and that “there was just a gap” between the two parties’ views on valuations, partly because some items had still been “outstanding” in the due diligence process when an indicative price offer for the company was announced last week.
Brookfield announced publicly last week that it had given a “non-binding indication” that it could submit a bid valuing the company’s shares at €6.45bn, pending final due diligence. In response, Grifols’ chair said that the potential offer “significantly undervalues” its “fundamental prospects and its long-term potential”.
While Brookfield said that its potential offer represented a 22 per cent premium to Grifols’ “unaffected share price” before its interest in the company became public in July, the offer was still significantly lower than where the company’s shares were trading before the January short seller report.
The person familiar with the talks noted that while Brookfield’s indicative proposal was never a formal bid, the firm had organised financing for the possible deal and designed a plan to overhaul Grifols’ business after months of negotiations.
Brookfield had to line up billions of euros of debt financing for a bid in order to cover a potential refinancing of a significant chunk of Grifols’ €11bn debt pile. Change of control clauses in the company’s bonds dictate that billions of debt have to be repaid if the Grifols family takes an over 50 per cent stake or a new investor holds more than 35 per cent.
Grifols’ bond prices also fell on news of Brookfield stepping away from a bid, with its debt maturing in 2028 falling four percentage points to 89 cents on the euro, a significant discount to face value.
Spain’s National Court announced last week that it had opened a probe into Gotham City Research and its partner hedge fund General Industrial Partners for “allegedly releasing biased and misleading information on the financial market about the credibility of Grifols”. A representative of Gotham and GIP declined to comment on the probe.
The probe came after the Spanish market regulator announced in September that while it suspects Grifols of committing a “very serious continuous infringement” of securities law due to alleged inaccuracies in its financial reporting, the regulator had also handed a dossier to Spain’s public prosecutor’s office about suspected market abuse from Gotham and GIP.
Additional reporting by Barney Jopson in Madrid
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