Eurofins shares sink after Muddy Waters discloses short-selling position

Shares in French diagnostic and testing group Eurofins tumbled as much as 23 per cent on Monday after hedge fund Muddy Waters revealed a bet against the company, alleging it was “optimised for malfeasance”.

The New York short-selling outfit warned in a report that Eurofins’ accounts “could contain material overstatements of profits, cash balances, and other asset values”.

Luxembourg-based Eurofins, which is listed on the Paris stock market, is a testing specialist that its chair and largest shareholder, Gilles Martin, has built through hundreds of laboratory and corporate acquisitions since its inception in 1987.

Shares of the group closed down 16 per cent on Monday, giving the company a market value of €8.8bn.

Eurofins has become a large food, pharmaceutical and environmental testing conglomerate after expanding into medical diagnostics nine years ago. It completed 40 acquisitions for €158mn last year after conducting 59 purchases the previous year. Eurofins reported revenues of €6.5bn and net profit of €308mn for 2023.

Muddy Waters’ report alleged it was a company “of oddities and contradictions”, claiming its accounting seemed prone to errors, and much of its internal financial reporting seemed prone to manipulation.

Eurofins had also started to make smaller acquisitions that did not meet the threshold for disclosure, according to the report. However, the New York hedge fund stopped short of disclosing evidence of wrongdoing.

For two decades following its 1997 initial public offering, Eurofins was one of the best-performing stocks in Europe. In recent years, the company has attracted the attention of short sellers because of questions about its governance, accounting and structure.

In October 2019, London hedge fund Shadowfall published a report on the company titled “Too much cash or too much confusion?!?” that critiqued the group’s reporting and predicted a liquidity crisis.

At the time, Eurofins said the report contained “inaccurate, incomplete, irrelevant or misleading declarations”, and subsequently raised €568mn from shareholders in 2020 as the pandemic boosted its medical testing arm.

Buoyed by Covid-19, Eurofins’ share price reached a September 2021 high of more than €125 per share.

Eurofins declined to comment on Monday, but on Tuesday released a statement saying that “the entirety of the allegations and insinuations contained [in the report are] either inaccurate, irrelevant, biased and/or misleading”, adding that Muddy Waters had never “directly engaged” with the company. 

It added that it would provide further “detailed refutations and facts in due course”, saying that many claims had been addressed after previous short-seller reports.

Additional reporting by Ian Johnston