Mason Capital Management Highlights Corporate Governance Failures and Significant Shareholder Value Destruction Under Grifols Board of Directors

Rhea-AI Summary

Mason Capital Management, holding 2.1% of Grifols (GRFS) Class A shares, sent a critical letter to the Board highlighting corporate governance failures and value destruction. The letter opposes a rumored Brookfield transaction that allegedly undervalues the company. Mason criticizes the Board's history of poor capital allocation, citing €4.5 billion in debt-financed acquisitions since 2014 that only added €136 million in EBITDA. The investor points out conflicts of interest, particularly regarding board member Tomas Daga and Osborne Clarke Spain's involvement in multiple transactions. Mason calls for immediate implementation of corporate governance reforms and suggests the company is worth €20+ per share versus the rumored €12 Brookfield offer.

Positive

• Company's underlying business shows positive momentum
• Independent shareholders control 69% of Class A voting shares, enabling potential governance reforms
• Current valuation at 8.5x 2025E EBITDA suggests significant upside potential

Negative

• Board's poor capital allocation resulted in €4.5B debt for only €136M EBITDA addition
• High leverage ratio at 5.1x net debt/EBITDA
• Significant conflicts of interest in Board composition and transaction committee
• Share price depression due to governance issues and short seller report
• Delayed appointment of independent directors

Sends Letter to Board Detailing Board’s Conflicts of Interest and History of Poor Capital Allocation

Expresses Urgent Need for Independent Directors and Proper Oversight to Unlock Value

Believes Rumored Brookfield Transaction Substantially Undervalues Grifols

NEW YORK--(BUSINESS WIRE)-- Mason Capital Management LLC (“Mason”), a registered investment advisor to funds and accounts holding approximately 2.1% of Grifols S.A. (“Grifols” or the “Company”) (BME: GRF) (NASDAQ: GRFS) class A shares, today sent a letter to the Grifols Board of Directors (the “Board”).

Historical Forward EV/EBITDA Multiple (Graphic: Business Wire)

In the letter, Mason highlights numerous corporate governance failures that have resulted in Grifols’ depressed share price and a rumored transaction with affiliates of Brookfield Asset Management LP which dramatically undervalues the Company. Mason calls on the Board to immediately implement a series of actions to address its conflicts of interest, improve oversight, and ultimately unlock shareholder value.

The full text of the letter follows:

November 8, 2024

Grifols, S.A.
Avinguda de la Generalitat 152-158
08174 Sant Cugat del Vallès
Barcelona - SPAIN

Dear Grifols Board Members and Shareholders;

Mason Capital is a significant Grifols shareholder, controlling ~2.1% of the Class A shares. The rumored Brookfield transaction is the product of improper corporate governance by a conflicted Board with a history of poor capital allocation. While the family and its related directors currently have de facto Board control, it is with only ~31% of the Class A voting shares. The remaining 69% can permanently fix the corporate governance failings at Grifols and unlock tremendous value by doing so. Brookfield is not needed.

The current board has a long history of poor capital allocation. As illustrated below, every large (€1bn+) transaction since 2014 has destroyed shareholder value. The transactions were 100% debt financed, resulting in approximately €4.5 billion of additional debt on Grifols’ balance sheet while only adding €136 million of economic EBITDA (measured for the trailing twelve-month period ended September 30, 2024) – an implied multiple >32x EBITDA. By comparison, Grifols’ stock currently trades for ~8.5x 2025E EBITDA per consensus estimates.

Grifols Large M&A
						LTM Q3'24 EBITDA
				Price		Reported			GRF %		Economic			Price /
			Date	Paid		100% Share			Own. (1)		EBITDA			Economic
Novartis Diagnostic NAT			Jan-14	€	1,240				100	%
Hologic NAT			Jan-17		1,750				100	%
Total Diagnostics				€	2,990	€	143		100	%	€	143		20.9x
Biotest			Apr-22		1,461		(9	)	70	%		(7	)	NA
Total Large M&A				€	4,451	€	134				€	136		32.6x

Grifols’ consolidated net leverage is currently 5.1x. Elevated leverage left Grifols vulnerable to a spurious January 2024 short report, the focus of which was a purportedly unsustainable balance sheet. Had the Company not engaged in the series of value-destroying transactions summarized above, net leverage would be a reasonable 3.6x. At that prudent leverage level, the Company could have executed a share repurchase program to defend against the short report or even avoided the report altogether. However, the uncertainty caused by the short report is still negatively impacting Grifols’ share price today.

Capitalization Ex-Diagnostics and Biotest
						Diagnostics
														PF
			Q3'24			NAT			SRAAS		Biotest			Q3'24
Net Financial Debt			€	8,128		€	(2,990	)	€	1,564	€	(1,461	)	€	5,241
Market Cap (1)				7,745			-			-		-			7,745
SRAAS Stake (2)				(437	)		-			437		-			-
TEV			€	15,436		€	(2,990	)	€	2,001	€	(1,461	)	€	12,986
Q3'24 LTM EBITDA (3)			€	1,605		€	(143	)			€	9		€	1,471
Net Leverage			5.1x											3.6x
TEV Multiple			9.6x											8.8x
(1) Market Capitalization implied by Class A price on 11/08/24
(2) Residual SRAAS Stake value based on SRAAS share price as of 11/08/24
(3) Credit Agreement EBITDA

Mason Capital is concerned that these illogical transactions are due to highly conflicted directors on the Company’s Board. The most tenured Board members are either family members or Tomas Daga, the Grifols family’s closest advisor and a founding partner of Osborne Clarke Spain.

Since 2014, Osborne Clarke Spain has advised on at least 16 separate M&A transactions worth ~€8.5 billion (transaction history detailed in the appendix). While the exact amount is not disclosed, Osborne Clarke has undoubtedly received substantial fees related to services in connection with Grifols’ M&A transactions. And as Osborne Clarke Spain’s partner, Tomas Daga personally has likely received a significant share of the legal fees paid to Osborne Clarke by the Company. Board members who stand to benefit personally from transactions undertaken by the Company, and whose economic interests thus differ from shareholders, are inherently conflicted.

Poor capital allocation by a conflicted Board is a symptom of serious governance problems at Grifols. Having a director who benefits from the same M&A transactions which have materially harmed shareholders should trouble all investors, the CNMV, and all directors. It is also concerning that two non-voting members of the supposedly Independent Transaction Committee formed to evaluate a potential Brookfield transaction have either current or former ties to Osborne Clarke Spain, a firm with substantial ties to the Grifols family and that likely again stands poised to earn significant fees from any resulting transactional legal work. Mason asked for the Osborne Clarke members’ removal in an August 2024 letter to the Independent Transaction Committee given the obvious conflict of interest (reproduced in the Appendix). The conflicted members remain on the Committee today.

Poor corporate governance, which is reflected by the ~€11.20 share price, can be rectified with a strong independent board. Two independent director seats were vacated in July 2024 coincident with the announcement that the family was exploring a delisting transaction with Brookfield. Mason and other shareholders have proposed a strong candidate to replace one vacant seat. Instead of engaging with its shareholders, the Board has decided to delay as long as possible the appointment of the director designated by the minority shareholders. This is yet another example of improper corporate governance and lack of engagement with shareholders other than the Grifols family.

Despite perpetuating blatant conflicts of interest and destroying shareholder value, the family and Tomas Daga again may be attempting to take advantage of a weak Board by purchasing the Company at a depressed price that they themselves have caused. Have they no shame? To wit, a special deal with Brookfield is rumored which would advantage the family’s stake at the expense of the majority independent shareholders. This should concern the CNMV, independent majority shareholders, and all directors. A mirror image of the conflicted value-destroying transactions described above is underway; the stock price is capped despite improving fundamentals because of the perception that independent shareholders will be taken advantage of in a take-private transaction. The market’s concern is a take-private will occur at an advantageous price for the family because independent shareholders to date haven’t had a say in the sale process.

The Grifols family is a minority investor in Grifols. Although the family has controlled the company and management in the past, shareholders have not been organized. The voting majority lies with independent shareholders. Independent shareholders have already requested access to the Board by way of the exercise of their proportional representation right in accordance with Article 243 of the Spanish Companies Act.

The proportional representation right provided by Article 243 allows for majority shareholders to assert control. For each ~7.7% (1/13) of the Class A shares which are grouped, shareholders have the right to appoint 1 of 13 board members. This right is available to all shareholders. Mason and two other shareholders have already exercised this right to appoint one board member. Given corporate governance failings at the company, it is inevitable that other shareholders will exercise their rights to take control of the company’s board from conflicted directors who have destroyed billions in shareholder value.

One independent director has been nominated. Others may follow. Current directors may anticipate being part of a contested proxy contest which shines a light on the company’s corporate governance failings.

The Board should immediately implement the following actions to begin to fix ongoing corporate governance issues:

1. Provide access to the Board to Mr. Paul Herendeen as candidate designated by the grouped minority shareholders.
2. Remove the Osborne Clarke members from the Independent Transaction Committee.
3. Disclose all payments for the past 15 years by the Company to Osbourne Clark Spain, and the amount of compensation Tomas Daga has received from Osborne Clark Spain attributable to Grifols-related matters.
4. Begin an open sale process to maximize value, including solicitations to all parties to purchase the company. Any non-solicitation agreement currently in place should be terminated immediately.
5. Re-schedule the Capital Markets day. The positive momentum in the business is clear and canceling the Capital Markets day only benefited the family and Brookfield at the expense of independent shareholders.

To directly address the potential Brookfield transaction: Why would shareholders sell at the rumored prices of €12/share and allow the family and Brookfield to take away the upside from positive business momentum and addressing corporate governance concerns?

Before the short report, Grifols hadn’t traded lower than 12.0x EBITDA over the past 10 years (as shown in the appendix). Mason Capital is confident that with an independent board and proper corporate governance, Grifols will regain at least its lowest historical market multiple given the asset quality. At 12.0x EBITDA, Grifols is worth €20+ today. Again, why would shareholders sell at €12/share?

Potential Valuation
								Source/Commentary
Consolidated EBITDA	@ 100%		NCI Share		€	2,012		2025E Consensus
(-) Diagnostic NCI	€	179	45	%		(81	)	Consensus '25E EBIT (+) LTM D&A
(+/-) Biotest NCI	€	73	30	%		(22	)	Mason estimate
Economic EBITDA					€	1,910
EBITDA Multiple					12.0x			10 yr low multiple pre-short report
TEV					€	22,915
(-) Reported Q3'24 Net Debt						(8,128	)	Does not give credit for future FCF
(-) Reported Q3'24 Lease Liabilities						(1,080	)
(+) Residual SRAAS Stake Value						438		SRAAS price as of 11/07/24
(-) BPC/Haema Call Option Strike Value						(498	)	$538mm USD
(+) Intercompany Loan to BPC/Haema						123		Page 19 2Q'24 filing
Equity Value	Class A		Class B		€	13,770
(/) Total Shares		426	261			688
Share Price					€	20.03

Regards,

Kenneth M Garschina
Managing Member
Mason Capital Management

Appendix:

Osborne Clarke Engagements:

GRIFOLS SA								11/08/24
Osborne Clarke Advisory Roles (€ in millions)
					Value in
				Grifols	Reported		Exchange
Date	Acquirer	Target	Description	Advisors	Curncy.		Rate ( /€)	Value (€)
6/18/2024	Haier Group	Shanghai RAAS	Divestment of Grifols' 20% equity stake in Shanghai RAAS to Haier Group	Osborne Clarke, JunHe LLP, Nomura	¥	12,500	0.13	€	1,600
4/25/2022	Grifols	Biotest AG	Acquisition of 70.18% of the share capital of Biotest AG	Osborne Clarke, Proskauer Rose, Nomura, UBS	€	1,461	1.00	€	1,461
3/11/2022	Synthetic Biologics	VCN Biosciences	Divestment of Grifols' 86.83% equity stake in VCN Biosciences to Synthetic Biologics (NYSE American: SYN)	Osborne Clarke	$	75	0.92	€	69
12/1/2021	GIC	Biomat USA	Divestment of minority stake in Grifols' U.S. subsidiary Biomat USA to GIC	Osborne Clarke, Proskauer Rose, Nomura	$	1,000	0.88	€	883
4/7/2021	Grifols	Kedrion	Acquisition of seven U.S.-based plasma donation centers from Kedrion	Osborne Clarke	$	55	0.84	€	46
4/7/2021	Grifols	BPL Plasma	Acquisition of 25 U.S.-based plasma donation centers from BPL Plasma, Inc., a subsidiary of Bio Products Laboratory Holdings Limited.	Osborne Clarke	$	370	0.84	€	312
3/9/2021	Grifols	GigaGen	Acquisition of remaining 56% share capital of GigaGen	Osborne Clarke, Proskauer Rose	$	80	0.84	€	67
12/15/2020	Grifols	Alkahest	Acquisition of remaining equity of Alkahest, Inc.	Osborne Clarke, Proskauer Rose	$	146	0.82	€	120
10/1/2020	Grifols	Green Cross	Acquisition of 11 plasma collection centers from Green Cross	Osborne Clarke, Stikeman Elliott, Nomura	$	90	0.85	€	77
10/1/2020	Grifols	GC Pharma	Acquisition of plasma fractionation, immunoglobulin, and albumin purification plants in Montreal from GC Pharma	Osborne Clarke, Stikeman Elliott, Nomura	$	370	0.85	€	315
8/1/2018	Grifols	Biotest US	Acquisition of 100% of Biotest U.S. Corporation's shares	Osborne Clarke	$	286	0.85	€	244
6/4/2018	Grifols	Haema AG	Acquisition of 100% share capital of the German firm Haema AG	Osborne Clarke	€	220	1.00	€	220
1/31/2017	Grifols	Hologic NAT donor screening unit JV	Acquisition of Hologic's share of NAT donor screening unit JV	Osborne Clarke, Proskauer Rose	$	1,850	0.95	€	1,750
3/3/2016	Grifols	Progenika	Acquisition of 32.9% of Progenika's shares, increasing Grifols' stake to 89.1% of the share capital	Osborne Clarke	€	25	1.00	€	25
3/4/2015	Grifols	Alkahest	Acquisition of 45% of Alkahest's shares	Osborne Clarke	$	38	0.90	€	34
1/9/2014	Grifols	Novartis diagnostics business unit	Acquisition of transfusion diagnostics unit of Novartis	Osborne Clarke, Proskauer Rose, Nomura	$	1,675	0.74	€	1,240
Total								€	8,463

August 31^st Letter to Independent Transaction Committee:

The following is a letter that was sent to the Independent Transaction Committee on Saturday, August 31^st, 2024.

Members of the Independent Transaction Committee:

Mason Capital Management LLC is a registered investment advisor to funds and accounts holding approximately 1.81% of the outstanding common stock of Grifols S.A. (“Grifols” or the “Company”). We write regarding the Board’s recent formation of a committee of independent directors (the “Independent Transaction Committee”) to act in connection with a potential transaction involving members of the Grifols family and Brookfield Asset Management LP or its affiliates (the “Potential Transaction”).

Given the significance of the Potential Transaction to all shareholders and the clear conflict of interest impacting several members of the Board, it is paramount in our view that shareholders be able to communicate candidly with the Independent Transaction Committee about the Potential Transaction, free of undue influence by the conflicted members of the Board. To that end, we believe that shareholder communications with the Independent Transaction Committee should not be shared with the wider Board (which includes conflicted directors). Please advise us promptly of any rules or procedures that are in place to govern the confidentiality of shareholder communications with the Independent Transaction Committee concerning the Potential Transaction.

For the same reason, we are concerned that Ms. Núria Martín Barnés and Ms. Laura de la Cruz Galán are acting as secretary to the Independent Transaction Committee. Both are current or former attorneys with Osborne Clarke, a firm with substantial ties to the Grifols family and conflicted directors, making their involvement with the Independent Transaction Committee wholly inappropriate. Please confirm that oversight will be rectified immediately and the Independent Transaction Committee will secure non-conflicted personnel to act as secretary to the committee.

We look forward to your prompt response so that we, and presumably other non-Grifols family shareholders, can share our views with you about the Potential Transaction confidentially and assist the Independent Transaction Committee with fulfilling its mandate to act in the best interests of the Company and all stakeholders.

We would like to reiterate all the above and note that Grifols has not removed the conflicted individuals from the Independent Transaction Committee.

Historical Forward EV/EBITDA Multiple:

See Historical Forward EV/EBITDA Multiple chart above.

Source List:

• Independent Transaction Committee (Link)
• Núria Martín Barnés Profile – Board of Directors Profile (Link)
• Laura de la Cruz Galán Profile – Board of Directors Profile (Link)
• Tomás Dagá Gelabert – Board of Directors Profile (Link)
• Novartis Diagnostics NAT Deal Announcement (Link)
• Hologic NAT Deal Announcement (Link)
• Annual Report 2022 (Link)
  • Biotest Purchase Price and Ownership of Share Capital (pg. 3)
• Q3 2024 Results Investor Presentation (Link)
  • SRAAS Value (pg. 14 FN) – SRAAS earnings not included in definition of Credit Agreement EBITDA
  • Net Financial Debt (pg. 31)
  • Credit Agreement EBITDA (pg. 31)
  • Diagnostics EBITDA (pg. 33)
  • Biotest EBITDA (pg. 33)
• Second Quarter 2024 Consolidated Interim Financial Statements (Link)
  • Residual SRAAS Stake (pg. 17)
  • Purchase Option on BPC Plasma, Inc. and Haema AG (pg. 32)

About Mason Capital Management LLC

Mason Capital Management LLC is an absolute return focused investment firm that combines deep fundamental analysis with hard catalysts to drive value creation. Founded in July 2000 by Ken Garschina and Mike Martino, Mason’s strategies range from event-driven investing to corporate carve-outs and control acquisitions.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241107873955/en/

Jonathan Gasthalter/Sam Fisher

Gasthalter & Co.

+1 (212) 257-4170

Source: Mason Capital Management LLC

FAQ

What is Mason Capital's stake in Grifols (GRFS)?

Mason Capital Management holds approximately 2.1% of Grifols (GRFS) Class A shares.

What is the rumored Brookfield transaction price for Grifols (GRFS)?

The rumored transaction price is €12 per share, which Mason Capital believes substantially undervalues the company.

What is Grifols' (GRFS) current net leverage ratio?

Grifols' consolidated net leverage ratio is currently 5.1x EBITDA.

What is Mason Capital's fair value estimate for Grifols (GRFS)?

Mason Capital estimates Grifols is worth €20+ per share based on a 12.0x EBITDA multiple.