BREAKINGVIEWS-Brookfield may have to dig deeper to bag Grifols

By Yawen Chen

LONDON, April 2 (Reuters Breakingviews) - Brookfield has given embattled pharma group Grifols GRLS.MC a confidence boost. The private equity group is considering launching a 7 billion euro bid for the company which makes medicines out of plasma, per El Confidencial. But the renewed interest and fact that the Canadian fund can still pocket an attractive return even at a higher offer may embolden the Spanish seller to play hardball.

Just four months ago, Grifols’ board rejected Brookfield’s non-binding 6.5 billion euro bid, saying it significantly undervalued the company. At the time, Grifols was battling a short-seller attack which raised financial and governance concerns. The collapse of the deal talks added to Grifols’ woes as the company’s stock fell 16% in the following months. But Brookfield is now back and has contacted the Grifols family, which owns 30% of the company, about a potential deal. The news drove the target’s shares up 11% on Wednesday.

Brookfield’s interest helps lift the fog over Grifols’ outlook. The Barcelona-based company is still in a court fight with short-seller fund Gotham City Research, which questioned in 2024 Grifols’ accounting and the size of its debt. While Grifols denied any wrongdoing and sued Gotham, the Spanish regulator agreed with some of the short-seller’s concerns about the company’s accounting. Still, it stands to reason that for the Canadian firm to re-engage, it must have been comfortable with these risks.

Brookfield can also pocket a juicy return. A 7 billion euro offer would bring Brookfield’s total outlay to around 16 billion euros including debt. Imagine Grifols grows its EBITDA by 9% each year, below the company’s own target of 12% – its EBITDA would reach 2.8 billion euros by 2030. If Brookfield exits at the same 9 times EBITDA multiple, that would imply a valuation of 24 billion euros. This would deliver an internal rate of return of 23%, according to Breakingviews calculations that assume capex of 525 million euros a year, and debt financing of 5 times EBITDA.

Grifols’ board has another reason to demand a higher price or continue to go it alone. After all, the company trades at 8 times the EBITDA analysts expected it to deliver this year, much lower than its 10-year average of 13 times. And with Brookfield’s return and its lack of concern about legal wrangles, the Grifols board can afford to sit tight.

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CONTEXT NEWS

Canadian investment fund Brookfield has resumed talks on a potential takeover of Spanish pharmaceuticals company Grifols, news website El Confidencial reported on April 2, citing unidentified industry sources.

Brookfield has contacted the Grifols family and is considering making an offer valuing the company at 7 billion euros ($7.55 billion), El Confidencial said.

A non-binding offer that valued Grifols at 6.45 billion euros, at 10.5 euros a share, was withdrawn by Brookfield in November 2024 after Grifols management rejected the bid as too low.

Grifols’ board does not have any knowledge of discussions regarding an offer from Brookfield resuming as was reported, the company said in a filing to the stock market regulator, Reuters reported on April 2.

Grifols shares rose 11% to 9 euros by 0909 GMT on April 2.