Eurofins Scientific's stock drops on allegations from short-seller Muddy Waters

By Louis Goss

Eurofins Scientific shares plunged on Monday after Muddy Waters Research said in a report it had started shorting the laboratory-services company, alleging founder and Chief Executive Gilles Martin has spent decades "covertly enriching" himself through improper real-estate deals.

In the 35-page report published on Monday, short-seller Muddy Waters alleged Eurofins founder and CEO Martin "has been siphoning money from the company for two decades" using "improper and abusive real estate transactions."

The report said Martin pushed Eurofins into paying more than it should have for businesses it was acquiring, so that he could personally buy up the properties they owned for below-market rates, before renting them back to Eurofins at above-market prices.

Eurofins was contacted by MarketWatch for comment.

Shares in Eurofins Scientific (FR:ERF), listed on the Euronext Paris stock exchange, fell 20% on Monday having lost 6% of their value in the 12 months before the publication of Muddy Waters' report.

The report said Martin pushed Eurofins into a series of opaque deals that have seen the Luxembourg-headquartered company acquire 364 separate businesses since 2014, in transactions that were in the vast majority of cases valued at sums below the firm's reporting threshold.

According to Muddy Waters, Eurofins told investors it was avoiding purchasing property itself, as doing so would "immobilize capital... at low rates of return," while paying above-market rents to Martin to use properties in his real-estate portfolio instead. The company also made efforts to conceal the fact that Martin was acquiring real estate owned by companies being purchased by Eurofins, Muddy Waters' report said.

Martin started Eurofins in 1987 as a food-testing business before transforming it into a major lab-services company through hundreds of acquisitions in the decades since it first listed on the Paris Stock Exchange in 1997.

Muddy Waters' report said Eurofins seems to be "optimized for malfeasance" via its fragmented and compartmentalized structure, which sees its management working from Belgium and its audit team working from Poland - meaning few employees have an overarching view of the company.

The short-seller also noted that while average rates of compensation for Eurofins' staff appear to be high, sources inside the company reported that the majority of workers are actually paid rather poorly, with just a few high-performing senior managers instead receiving outsized pay.

Muddy Waters raised concerns that "a loyal inner circle who is willing to overlook problems." That inner circle includes Martin's brother and ex-wife, who is now running Eurofins in a way that is enabling its CEO's "parasitic" and "controlling" behavior, according to Muddy Waters.

Muddy Waters Research was founded by short-seller Carson Block in 2010, before gaining prominence for publishing a report on Chinese timber company Sino-Forest Corporation in 2011 that led to it filing for bankruptcy the following year.

-Louis Goss

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

06-24-24 0833ET

Copyright (c) 2024 Dow Jones & Company, Inc.