Santander Credit Research | Grifols (B+ s, B+ s) yesterday informed the CNMV that it has received a non-binding offer from Brookfield that considers a price of €10.50 per class A share and a price of €7.62 per class B share, which would imply valuing Grifols’ equity at €6.5 billion.
According to the relevant fact communicated to the CNMV, Brookfield last week sent letters to Grifols’ Transaction Committee, constituted by the issuer’s Board of Directors on 12 July 2024, requesting certain information to complete its due diligence exercise and, at the same time, indicating the aforementioned valuation, which represents a 22% premium over the unaffected price on 4 July 2024 (when Brookfield first expressed its interest).
The Transaction Committee of the Board of Directors indicated that the potential offer indicated above significantly undervalues the issuer’s fundamental prospects and long-term potential. Accordingly, the Transaction Committee stated that it is not in a position to recommend to the Board to support a public offer at this valuation or to recommend to Grifols shareholders to accept a potential offer at the price indicated.
In connection with the note sent yesterday by Brookfield, the Grifols Transaction Committee called an extraordinary meeting of the Board of Directors yesterday afternoon to discuss the information received. Those directors who are in conflict of interest did not participate in this meeting. The Board of Directors issued its opinion last night, stating that it does not recommend that shareholders accept the offer for the same reasons expressed by the Transaction Committee.
Research team’s view: As we have indicated in our recent comments on Grifols, the situation is binary: while there is a possibility that the Brookfield transaction could go ahead and the bonds would be redeemed at 101 due to the change of control clause, we also believe that if the deal fails there would be a negative reaction in Grifols bonds. The initial offer shown is below market expectations, especially in terms of the B-share price, which explains the negative reaction experienced by bonds and stocks yesterday. On fundamentals, we continue to recommend Overweight Grifols debt, based on our outlook for business improvement in 4Q24 and 2025, especially given that Biotest will start contributing EBITDA next year (€90 million vs. €55 million in FY24) and that cash flow generation is expected to improve significantly in 2025. We believe Biotest’s proteins (Yimmugo, alpha-1 and fibrinogen) will benefit from Grifols’ operating leverage and commercialisation capabilities in the US in the coming years. In terms of free cash flow, we estimate €300-400 million in 2025, and this was the forecast provided by the company in June after eliminating the €370 million of extraordinary capex in 2024. We now await the 2025 forecast, as the new CFO has indicated that he will provide these figures in the 2024 results presentation, due at the end of February.
