Sun, Dec 21, 2003 - Page 11 News List

Parmalat misplaces US$5 billion

CRYING OVER SPILT MILK The Italian dairy products giant stood on the brink of bankruptcy as its shares fell 66% after officials said billions of euros were lost

NY TIMES NEWS SERVICE , PARMA, ITALY

Parmalat, the Italian dairy and food giant, slid to the brink of insolvency on Friday after the company disclosed that a bank account that supposedly held nearly US$5 billion of its money did not exist. Parmalat said that Bank of America had told its auditor, Grant Thornton, that a document showing that a Parmalat finance unit in the Cayman Islands had an account of 3.95 million euros (US$4.9 billion) was fake.

PHOTO: NY TIMES

Parmalat, the Italian dairy and food giant, slid to the brink of insolvency on Friday after the company disclosed that a bank account that supposedly held nearly US$5 billion of its money did not exist.

Parmalat said that Bank of America had told one of its auditors, Grant Thornton, on Wednesday that a document showing that a Parmalat finance unit in Cayman Islands had an account of 3.95 billion euros (US$4.9 billion) was a fake. A Bank of America spokeswoman in London declined to comment.

The crisis at Parmalat, which has been escalating in recent weeks, now dwarfs accounting problems that have roiled European companies like Royal Ahold of the Netherlands, Vivendi Universal of France and Elan of Ireland. Such scandals have demonstrated that European accounting standards and regulation can be susceptible to Enron-like problems.

The Parmalat case, and its implication that a fraud has been committed, will be certain to provoke debate about the failure of European regulators and banks to ask questions sooner.

After a board meeting late Friday that was called by Enrico Bondi, the new chairman, Parmalat issued a short statement saying that it would provide information to judicial authorities.

It did not address plans for Parmalat or the prospect of bankruptcy. But for a company that narrowly avoided defaulting on US$183 million in debt just days ago, the prospect of missing US$4.9 billion -- more than half its revenue last year -- makes bankruptcy seemingly inevitable.

There are a number of bankruptcy options under Italian law, including liquidation. But the most likely outcome for Parmalat would be a protection from creditors under the supervision of the Industry Ministry.

This would allow the company -- best known for its long-life milk but also the owner of Archway cookies and dairies in the US -- to remain in business while its finances are untangled.

It is a stunning downfall for a company that began as a family-owned delicatessen and grew in recent years to become a global rival to Nestle, Danone and Kraft, selling milk and food products in 30 countries including the US. That rapid expansion, however, came at a cost, and the Tanzi family that controls Parmalat began resorting to ever more convoluted schemes to finance growth.

By last year, Parmalat, based here in north-central Italy, stood at the center of a galaxy of 120 different companies, often with obscure purposes.

The rise and fall of Parmalat illustrates the archaic nature of corporate Italy compared with business in other Western industrial powers.

Italy is a land of self-made entrepreneurs at family-run companies. Except for the state-owned sector, virtually all the Italian economic heroes, including the Fiat auto group, the tire and cable company, Pirelli, and the Benetton apparel group, are family-run.

Bondi, who replaced Calisto Tanzi, Parmalat's founder and majority shareholder, might resign.

The Milan stock exchange barred Parmalat shares from trading for most of the day, after they fell more than the permitted 10 percent on Thursday over continued concern about Parmalat's future.

But investors punished Parmalat bonds, pushing them down to as low as 25 percent of face value from about 45 percent. Parmalat almost defaulted on 150 million euros of bonds that matured last week, making the payment four days late.

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