The Viceroy Report of the short-seller Fraser Perring, 46, about the listed German GRENKE AG has first personnel consequences. Company founder Wolfgang Grenke, 69, resigns from the company’s supervisory board with immediate effect until the accusations have been cleared up. The company, founded in 1978, also announced a special audit by an independent auditing firm. After Wirecard, GRENKE is the second German target of the short seller from London. And it is again a powerfully executed but much better-prepared attack.
The smoking gun in Vienna
So Wolfgang Grenke had to give in, at least temporarily. He may not yet be Markus Braun but he was punched heavily. In fact, the accusations of the Viceroy Report are also serious and could well endanger its existence. Although the accusation that there is a massive lack of money at GRENKE AG, similar to Wirecard may or may not be true, there are other serious allegations included in the report. The attack by Perring probably hit the GRENKE AG completely unprepared. The company is undoubtedly down-counted. Investors, partners, and customers are unsettled. Especially after the Wirecard disaster.
In its very essence, the accusations of the Viceroy Report are about the fact that new franchise companies are first established and financed via the Viennese CTP Handels- und Beteiligungs GmbH (“CTP GmbH“) and then sold to public-listed GRENKE AG after a few years. However, the CTP GmbH is supposed to be controlled by Wolfgang Grenke and/or persons close to him. The balance sheet of the CTP GmbH showed high annual profits of up to €13 million over the last years. The Viceroy Report says that these transactions were in fact in-sight transactions with affiliated companies and served among other things to manipulate the balance sheet.
GRENKE AG is now commissioning an independent auditing company to examine the marketability of the franchise takeovers of the past and their benefits for GRENKE AG. The Supervisory Board has already decided on a corresponding expert opinion.
A new franchise system?
Apparently, the people at GRENKE AG are by no means sure that the franchise system currently implemented is really proper and/or is really executed in line with the adequate IFRS standards. According to the press release of GRENKE AG, the internal consultations on the new franchise system have already started. Before any changes in the system are made, GRENKE says that it will carefully examine the effects on the accounting and consolidation of the currently implemented franchise companies around the Vienna CTP GmbH.
And the first round goes to the Shortseller
Since the publication of the Viceroy Report, the GRENKE AG share price has lost massively. It was under pressure again today – at times the shares lost almost 10% to 30 Euro and were among the biggest losers in the MDax. Before publication, the share stood at around €54, which means that the market capitalization of the company has fallen by more than €1.4 billion in some cases, as the German Manager Magazin correctly notes.
The first round was won by the short-seller Fraser Perring and his friends. His methods may look unusual in the first place. Some may find them even unethical. Especially in Germany with a much less aggressive approach to capital markets, short-selling, and speculation. The fact is that Perring, as with Wirecard, has analyzed well and put forward witty arguments. Many experts see in people like Fraser Perring a constructive force that uncovers and eliminates the weaknesses of companies and/or expose zombie businesses. For better or worse, as with Wirecard.
The fate of GRENKE AG is not yet finally decided but honestly it doesn’t look too bright, does it?