Identifier
Created
Classification
Origin
03ROME5709
2003-12-23 16:49:00
UNCLASSIFIED
Embassy Rome
Cable title:  

Parmalat, Italy's Corporate Giant, in Crisis

Tags:  ECON EFIN ETRD IT EUN 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS ROME 005709 

SIPDIS


DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
PARIS ALSO FOR USOECD
TREAS FOR OASIA STUART
FRANKFURT FOR WALLAR
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ
STATE PASS USTR

E.O. 12958: N/A
TAGS: ECON EFIN ETRD IT EUN
SUBJECT: Parmalat, Italy's Corporate Giant, in Crisis


SUMMARY
-------

UNCLAS ROME 005709

SIPDIS


DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
PARIS ALSO FOR USOECD
TREAS FOR OASIA STUART
FRANKFURT FOR WALLAR
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ
STATE PASS USTR

E.O. 12958: N/A
TAGS: ECON EFIN ETRD IT EUN
SUBJECT: Parmalat, Italy's Corporate Giant, in Crisis


SUMMARY
--------------


1. Parmalat, Italy's dairy and food giant, is in the
midst of financial crisis and is in danger of bankruptcy.
Milan magistrates are investigating Parmalat's former
top management for accounting irregularities committed
from 1988 to the present that reportedly have resulted in
a shortfall of Euro 10 billion (USD 12.5 billion). The
GOI is expected to issue a decree law to implement
bankruptcy protection procedures and to ensure that
Parmalat's business operations can continue. End summary.

BACKGROUND
--------------


2. Parmalat, founded in 1961, is a major dairy product
and foods group, controlled by Parmalat Finanziaria
(FNC). The core business of Parmalat was the production
of its long shelf-life milk; but over the years, Parmalat
has diversified into other lines of food products,
including cream, yoghurt, fruit juice, tomato products,
bakery products, and mineral water. The Parmalat Group
currently employs about 36,000 and operates more than 50
companies in 30 countries, including the United States,
as well as 146 plants in China, Australia, Europe, and
North and South America. Most of its European facilities
are at Collecchio, near Parma.

THE CHARGES
--------------


3. Major European dailies reported December 20 that Milan
magistrates are investigating Parmalat's former chairman
and founder Calisto Tanzi, his son Stefano, and some 20
managers and auditors for accounting and financial
irregularities committed from 1988 to the present. These
irregularities produced a shortfall allegedly estimated
at Euro 10 billion (USD 12.5 billion).


4. Enrico Bondi, an expert in corporate rescues, replaced
Calisto Tanzi last week. According to media reports
December 23, Bondi met prosecutors leading the
investigation to discuss the case.

GOVERNMENT INTEREST
--------------


5. The GOI discussed Parmalat's situation December 19 and

20. Prime Minister Berlusconi said that the Government
would seek to ensure that Parmalat's business operations
could continue. The cabinet will meet again today
(December 23) to review the situation and most likely
approve a decree law to give the Prime Minister power to
appoint three commissioners to replace the current board
of directors. With respect to the question of financial
support, however, Italy will be subject to scrutiny under
European Union regulations.


6. Parliament is also interested in how the crisis is
being managed. On December 22, Lower House Speaker Pier
Ferdinando Casini announced that there will be a
parliamentary inquiry to ensure that consumer rights are
protected in any proposed solution.

COMMENT
--------------


7. Following the near-collapse of Fiat in 2002 and the
collapse of another food company Cirio in 2003,
Parmalat's crisis raises questions about the health of
Italian capitalism in general. Like Enron, Parmalat's
alleged financial irregularities also raise questions
about the integrity of Parmalat creditor banks and its
auditors. There will also be the question of who will
finance any bailout (and that will be subject to EU
regulations). Finally, since Parmalat is such a large
employer, any solution must also consider how to
equitably resolve the question for thousands of Parmalat
employees (and the employees of Parmalat suppliers, both

here and abroad). The Embassy plans to prepare a more
comprehensive analysis the week of December 29. End
comment.

SEMBLER


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2003ROME05709 - Classification: UNCLASSIFIED