Parmalat to file for bankruptcy protection with €9bn ‘missing’

PARMALAT, the Italian dairy giant, said it will file for bankruptcy protection after the Italian government passed an emergency measure to speed the restructuring of the country’s biggest food company.

The Italian cabinet approved a change yesterday in rules for corporate rescues that will let the government name Enrico Bondi, a turnaround expert appointed head of Parmalat last week, as a special commissioner to run the company in bankruptcy.

Parmalat disclosed the bankruptcy plan in a three-sentence statement distributed by the stock exchange last night. Bondi and Italian investigators must unravel the finances of a company that reported €4.2 billion in cash and marketable securities three months ago and now can’t make payments worth a tenth of that amount. Parmalat is unable to document about €9 billion of funds in its accounts.

“Something more complex and hidden pops up every day,” said Claudio Morsenchio, a fund manager at Banco Emiliano Romagnolo, who doesn’t own Parmalat stocks or bonds. “Up until last week you could still believe the company had everything under control.”

Parmalat, known for its long-life milk, is weighing two options under Italian bankruptcy law. Either it takes advantage of the decree passed by the government, or it follows a law designed in 1999 to allow companies whose demise would hurt the country’s economy to continue operating.

Both options are intended to keep creditors at bay while a company restructures.

A Parmalat spokesman said a decision will come in the “next couple of days”. The new law hasn’t been enacted yet.

Outside Italy, subsidiaries such as Farmlands Dairies of New Jersey will probably have to file for protection from creditors in each country.

Parmalat, founded in 1961, grew from a family salami and ham maker based near Parma to a global food business with annual sales of €7.6 billion. About a third of its revenue comes from North America.

Founder Calisto Tanzi resigned on December 15 after Parmalat barely avoided default on €150 million of bonds, paying four days late and raising concern about a cash crunch.

The €9 billion that can’t be traced is twice as much as Parmalat said was missing on Friday.

The investigation may widen into Italy’s biggest probe of corporate wrongdoing since 1993, when Ferruzzi collapsed with $20 billion in debt.

The company’s problems threaten 36,000 jobs at Parmalat, as well as the repayment of €2 billion of bank loans and about €4 billion owed to bondholders.