Mason Capital Reiterates Corporate Governance Shortcomings and Mismanagement of Grifols Under Current Board of Directors
Believes Substantially Greater Value Than Any Brookfield Bid Can Be Realized by Ousting Conflicted Directors and Restoring Majority Control of Independent Shareholders
Demands Rightful Addition of Paul Herendeen to the Board via Voluntary Appointment or Shareholder Vote
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"). In the letter, Mason reiterated the Company's corporate governance deficiencies, which have inflicted large losses on all shareholders and resulted in a rumored take-private by affiliates of Brookfield Asset Management LP and the Grifols family at a significant discount to fair value. Mason demands that Paul Herendeen be added to the Board as candidate designated by a group of minority shareholders in order to restore independent oversight at the Company and unlock shareholder value.
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In a November 8, 2024 letter sent by Mason to the Board, Mason urged the immediate implementation of a series of actions to address the Company's corporate governance shortcomings.
In the Board's response received by Mason on November 12, 2024, the Board followed just one of Mason's recommendations, disclosing – for the first time – that conflicted members have stepped down from the Independent Transaction Committee formed to evaluate the rumored transaction with Brookfield Asset Management LP. Otherwise, the Board defended its track record of poor capital allocation, including the acquisitions of Novartis, Hologic NAT, and Biotest, while remaining silent on key questions about other blatant conflicts of interest, including the amounts Osborne Clarke Spain was paid to advise Grifols on these transactions, and refusing to facilitate the appointment to the Board of Paul Herendeen. The Board's response is attached to this press release.
The full text of Mason's November 19, 2024 letter follows:
November 19, 2024
Grifols, S.A.
Avinguda de la Generalitat 152-158
08174 Sant Cugat del Vallès
Barcelona – SPAIN
Dear Grifols Board Members and Shareholders;
Mason appreciates the response to its letter received on 12 November 2024. The Board's responses mostly confirm the points raised in our original letter while remaining silent on key questions about conflicts of interest.
The Board confirms that Tomas Daga "led" historical major transactions, including Diagnostics and Biotest. The Board offers a weak analysis defending these transactions despite the simple facts that Diagnostics earnings have collapsed since the acquisition,(1) and Biotest currently contributes less than €5 million of EBITDA to Grifols(2). Grifols traded at ~€22 when Biotest was announced compared to ~€11 today; the transaction clearly contributed to the ~50% destruction of value suffered by shareholders over the past three years.
The Board's response attempts to distance Tomas Daga and Osborne Clarke Spain (e.g., Daga "holds no position of control in the law firm"), but it fails to disclose that Osborne Clarke Spain was previously known as Daga y Sauret(3); Tomas Daga and Osborne Clarke Spain are inexorably linked.
It is notable that the responses did not disclose the amounts Osborne Clarke Spain was paid for advice on these transactions. The 90% shareholder support for Daga's re-election in the past two AGMs is backward-looking, and the Board should not anticipate the same level of support moving forward, given that the marketplace is now aware of Daga's clear conflict of interest. In our conversations with Tomas Daga, he revealed he has voluntarily offered his resignation to the Board on three separate occasions.
We commend that at least one of our recommendations was followed; conflicted members have stepped down from the Independent Transaction Committee. However, even this action raises additional questions: when was the decision made to remove the directors from the committee? Why were the market and the CNMV not notified of this material information? The lack of disclosure further highlights the Company's corporate governance shortcomings.
Yesterday's stock price reaction to a planted newspaper article describing a €10.50 per share bid from Brookfield and the Grifols family illustrates the obvious reality of poor corporate governance. Real money investors do not trust the Board, family or Daga enough to price Grifols' equity anywhere near its intrinsic value as the stock sank to the purported bid price, fulfilling the obvious goal of the planted article: to further the interest of Brookfield, the family, and Daga of suppressing the price to take the upside away from the majority shareholders. This article should trouble all Directors. Directors should not only consider the bid price but also that the family is a minority holder with current de facto control of the Board. However, that may not be the case in the near-term; conflicted directors may be ousted, majority control of unconflicted shareholders asserted and a fair price for the equity restored.
The Board is attempting to take advantage of its own failings which have inflicted large losses on all shareholders. All Directors have a duty to all shareholders. Directors should consider whether correcting the conflicts keeping investors away creates more value than a bid from the family and Brookfield. Majority shareholders are organizing to effect those changes regardless of the current Board, family, or Daga's willingness to fulfill their own duties to all shareholders. The family and Daga do not want the governance deficiencies ameliorated because right now those deficiencies are creating a construct that allows them to monetize the large discount to fair value their own actions have caused. A family board member purchased shares at €15.41 in December 2023(4): clearly the family's view is that fair value is much higher.
We are pleased that the Board purports to be committed to adding new qualified Independent Directors. Mason and other grouped minority shareholders have submitted such a director, Paul Herendeen. However, instead of engaging with its shareholders, the Board demanded proof of ownership for shares minority shareholders clearly owned, indicating a lack of seriousness in addressing shareholder concerns. The grouped minority shareholders have now fulfilled the Board's tedious requests, and either Paul Herendeen should be added to the Board or an AGM held immediately.
Mason is actively speaking to new directors and shareholders. There is consistent agreement on our views and eagerness to be part of the turnaround of a company that has been mismanaged.
Regards,
Kenneth M Garschina
Managing Member
Mason Capital Management
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.
(1) Diagnostics EBITDA has declined on average 44% from 2017-2021 to 2022-2024 periods
(2) Biotest's €129.5mm of reported LTM EBITDA includes €123.8mm of earnings from intercompany technology disclosure and development services for Grifols, and Grifols' ownership stake in Biotest is 70.18%
(3) "Osborne Clarke abre oficina en Madrid con veinte abogados", Expansión, 20 February 2012 (Link)
(4) Raimon Grifols Roura purchased 5,838 shares on 12/29/2023
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