Grifols: Family Considering Taking the Firm Private

We’re maintaining our $11.80/EUR 10.90 fair value estimates for Grifols Class B (nonvoting) shares following the news that Grifols family members and private equity firm Brookfield Capital Partners are carrying out due diligence on the firm as they consider making an offer to take the firm private. It is still unclear whether there will ultimately be an offer or what the value of the offer might be. As of the firm’s 20-F filing in April 2024, the Grifols family and Scranton Enterprises (a related party with significant family ownership) owned 36% of Grifols’ voting (Class A) shares. At our $11.80 fair value estimate for Class B (nonvoting) shares, the value of the remaining shares outstanding would be roughly $6.3 billion. Grifols has been under significant scrutiny since the beginning of the year, when Gotham City Research first released a report accusing the firm of manipulating its debt ratios with its accounting treatment for noncontrolling interests and related party transactions. In late March, the Spanish National Securities Market Commission confirmed that Grifols’ financial reports did not contain any significant errors and that its leverage ratio calculation was in order, although regulators did cite some areas where Grifols could improve reporting. While Grifols’ leverage ratio stood at 6.8 times trailing 12-months adjusted EBITDA at the end of the first quarter, Grifols has since received $1.7 billion from the sale of a 20% equity stake in Shanghai RAAS, which should reduce its leverage ratio to roughly 5.4 times in the second quarter, and Grifols has no debt due until 2027. That said, we continue to view Grifols shares as warranting a Very High Uncertainty Rating and a Poor Capital Allocation Rating due to a weak balance sheet and the changing landscape for its plasma-derived therapies. We recently reduced the firm’s moat rating from narrow to none, as we think its competitive advantages are being eroded by novel treatments.