Grifols threatens lawsuit against Gotham City over critical report

The row between Grifols and Gotham City Research intensified on Wednesday when the Spanish drug company said it would take legal action against the short-seller fund over a critical report that wiped billions from the firm's value on Tuesday.

Shares in Grifols made a slight recovery, trading almost 9% higher on Wednesday, after the firm said it would seek compensation for financial and reputational damage to the company and its shareholders. Gotham also revealed it had reduced its position.

The stock plunged by 42% on Tuesday before finishing the session down 26%. Grifols, which makes medicines with human blood plasma, was scheduled to hold a conference call with investors on Thursday.

Gotham City said Grifols "manipulates" its reported debt and earnings before interest, taxes, depreciation and amortisation artificially, thereby reducing its leverage ratio through "deceptive and incorrect" treatment of financial statements through transactions with a company related to the founding Grifols family which controls the group.

"Should our estimate of the Grifols’ true leverage be correct, (it) will face notably higher financing costs. Consequently, we believe shares are uninvestable, likely zero," Gotham City said.

In response Grifols said the report was based on "false information" and denied all the allegations within it.

A separate filing to Spanish regulators on Wednesday revealed General Industrial Partners, a joint venture between hedge funds Gotham City Research and Portsea Asset Management, had cut its short position in Grifols GRLS.MC to 0.06% from 0.57%.

Reporting by Frank Prenesti for Sharecast.com