Westbourne River Partners letter to Biotest AG

LONDON, April 15, 2025 /PRNewswire/ -- Westbourne River Partners letter to Biotest AG with respect to the delisting offer made by Grifols S.A. to shareholders of Biotest:

Biotest AG
Attn. Peter Jannsen
Landsteinerstr. 5
D-63303 Dreieich

Cc: Supervisory Board

Dear Peter,

We are writing to you on behalf of Westbourne River Event Master Fund ("Westbourne River" or "we"), the largest minority shareholder in Biotest AG ("Biotest" or the "Company"), with respect to the delisting offer made by Grifols S.A. ("Grifols") to shareholders of the Company. We are deeply concerned about the decision of the management board to support the delisting, and we ask that the management and supervisory boards consider the appropriateness of (A) the decision to delist and (B) the price at which the delisting offer has been made.

At their investor event in February 2025, Grifols clearly stated that it would like to integrate Biotest into their larger operations. The simplest means for Grifols to accomplish this, given their 97% voting control of the Company, would be to launch a domination agreement. Indeed, the only structural measures available under German law for Grifols to achieve "integration" are (1) a squeeze-out (which would require Grifols to obtain a minimum of 90% of the Company's total capital) or, more realistically, (2) a domination agreement. Without undertaking one of these measures, Biotest will continue to be required to operate on an arm's length basis with Grifols.

Instead, Grifols are pursuing a delisting. On its face, and as described in further detail below, this strikes us as an attempt to scare minority shareholders into tendering their shares at below fair value, and to significantly hamper minority shareholders from monitoring the Company's progress and business plan ahead of an eventual undertaking of one of the structural measures outlined above. 

Delisting will not achieve Grifols's goal of integration. Delisting will, however, reduce the disclosure obligations of the Company and the transparency into the Company's business that minority shareholders currently have. Given the lack of liquidity in Biotest ordinary and preference shares, Grifols would be required to instruct an IDW-S1 valuation that would value the Company based on its own business plan for either a squeeze-out or a domination agreement. We firmly believe that valuation would be significantly above the stock market price. The lack of transparency that would come with delisting ahead of undertaking one of these measures would leave minority shareholders largely in the dark with respect to the business plan and resulting valuation. As such, delisting carries the very real threat of being harmful to minority shareholders. 

In early February 2025, Grifols – represented by its board member, Tomas Daga – reached out to us and offered to buy our stake in Biotest. When we suggested that they should use the structural measures available to them under German law, Mr. Daga dismissed this option, stating that Grifols didn't want to go through a valuation exercise and guarantee dividends. Instead, he asserted that they were going to delist the Company, and that our options were therefore either to sell our stake now or to remain in a private vehicle following the delisting. As you are aware, we immediately relayed this conversation, our concerns and a request to oppose a delisting offer to the Chairman of the supervisory board via phone and email, who assured us in response that Biotest "(took) the matter very seriously". 

Now, less than two months later, the fact that the management board, which you chair, has already entered into a delisting agreement with Grifols is extremely disappointing and suggests that the Chairman of the supervisory board's reassurance in February was an empty one. This reinforces our long-held concern that the Company is acting in the interest of its majority shareholder rather than in the interest of all shareholders. Two recent examples further highlight the basis for these concerns:

First, in November 2024, Biotest's cash flow guidance implied a €50-80 million cash burn in Q4 2024. However, the actual FY 2024 results, published in February 2025, indicated a cash inflow of roughly €40 million in that period. In other words, approximately €100 million of outperformance versus Company guidance given just seven weeks prior to the end of the year. In the interim period, Mr. Daga made us the offer described above at €30 per preference share. He justified the low bid by significantly disparaging the Company and its management and referring to the expected significant cash burn. Had the Company's original guidance been similar to its actual ultimate performance, this argument about cash burn would have been obviously spurious. 

Second, on 31 March 2025 – the same day as the announcement of the delisting offer – the Company released guidance indicating an operating loss in 2025 of over €55 million. This guidance stands in stark contrast to the Company's operating profit in 2024 of €95 million. Despite our questions during the full-year earnings call and requests for a detailed explanation, we have received no satisfactory answers explaining an expected €150 million decrease in year-over-year operating profits. 

Without any other reasonable explanations, we are left to fear that the Company's management board is making unjustifiably conservative projections that may have a manipulative effect on the stock price and, if and when Grifols launch a squeeze-out or domination agreement process, would materially reduce the IDW-S1 valuation process and serve Grifols to the detriment of other shareholders. This is particularly relevant now as Biotest is about to launch Fibrinogen and is progressing with the phase-III trial of Trimodulin. In Grifols' own words, these products are expected to have a market opportunity of over $800 million and over $2 billion, respectively. According to Grifols' analysts' comments published following the delisting offer, Grifols is making the offer now to buy out minority shareholders at a cheap price ahead of progression of these products, which is expected to substantially increase Biotest's valuation. 

Without the fulsome disclosure requirements of a listed company, minority shareholders would be far less able to track and compare the Company's projections and results versus prior results and public commentary (both by itself and by Grifols regarding Biotest's business) and would therefore be unable to call attention to practices that appear to unfairly harm minority shareholders. In other words, if, in the future, the Company were to produce artificially conservative business plans under a new reduced disclosure requirement, it would be more difficult to discover and hold the Company to account.

For these reasons, we ask that the Company reconsider the appropriateness of delisting, especially if the prices of the delisting offer remain unchanged. 

As indicated, we also view the terms of the offer as being made at a price materially less than fair value. When Grifols made a takeover offer for the Company in 2021, they agreed to pay €43 per ordinary share and €37 per preference share. Given that the economic rights of the preference shares and the ordinary shares are the same, we believed at the time (and still believe) that the value of these shares should be the same. Indeed, an IDW-S1 valuation would likely value the preference shares and ordinary shares at the same level. 

Even if one assumes that the ordinary shares carry a higher value than the preference shares (which, as described above, would likely not be the case in an IDW-S1 valuation), it is clear from Grifols's own statements that they believe (like we do) that Biotest has made significant progress in the intervening years. Presumably, then, further value will have accrued to the Company, and the current value of the company should be at a significant premium to the price Grifols paid in 2021, for both share classes. Instead, we find Grifols offering the same price per ordinary share as they offered in 2021, and 19% less per preference share. We don't believe that there is any fundamentals-based rationale for such a valuation. 

Ostensibly, Grifols is launching the offer for preference shares at the statutory minimum price. Grifols' shareholding has increased since the end of 2024. We were approached with an offer to buy our stake at €30 per preference share. We understand that other large minority shareholders were approached with the same offer, and that Grifols were in fact able to acquire additional shares this year at €30 per preference share. This likely defines the statutory minimum they would need to pay for a delisting offer. Several boards supporting delisting offers in the last few years have argued in favor of these offers on the basis that they provide exit liquidity for shareholders. Here, this argument doesn't apply: we understand that Grifols has contacted other shareholders in the way they have contacted us. If that is the case, shareholders will have already had the opportunity to sell at €30 per preference share this year. This delisting offer therefore has no value for current shareholders who rejected Grifols' €30 offer. Remaining shareholders would lose value by accepting the delisting offer, which we believe is below fair market value. Those who want to dispose of their Biotest shares at depressed prices can do so on the stock exchange. 

Despite the lack of benefit – and the clear potential for harm – to minority shareholders, your board has agreed to support the delisting offer. What's more, you have done so in the absence of any formal fair value assessment. We believe this could indicate a lack of independence and a dereliction of the duties that both the management board and the supervisory board owe to all shareholders. Supporting an unfairly priced delisting offer is akin to supporting a below market value squeeze-out for those shareholders who must not hold unlisted equity. In our view, this would be a breach of the Biotest boards' fiduciary duties, at least with respect to minority shareholders.

We would ask the boards of Biotest to withdraw their support for the delisting unless the offer price is increased to an IDW-S1-supported valuation, which is in turn based on a reasonable business plan. Further, the Company should clearly outline their mid-term plan and earnings potential, including the ramp up of Trimodulin production, and increase their shareholder outreach to ensure every shareholder has the same information about the Company's prospects. 

Yours Sincerely,

Abhishek Agrawal 
Senior Portfolio Manager
Westbourne River Partners

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