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Last Updated: Monday, 22 December, 2003, 08:46 GMT
Parmalat: An Italian favourite

By James Arnold
BBC News Online business reporter

It should in theory be possible to live in Italy without consuming Parmalat's products, but it certainly wouldn't be easy.

Parmalat milk is the Italian milk; Santal is the Italian fruit juice; a dozen other products, from Pomi pulped tomatoes to Grisbi biscuits, are staples of every Italian store-cupboard.

If you're in the curious position of not eating or drinking, Parmalat owns Parma football club, a stalwart of the Serie A.

Outside Italy, the firm is spreading its tentacles.

From almost nothing a decade ago, it is now in 30 countries - most aggressively in Eastern Europe and Latin America.

Structural sprawl

All most impressive.

From a single delicatessen in the early 1960s, the Tanzi family have built up a company with annual revenues of 7.6bn euros, and 36,400 staff at 139 production sites.

But as this week has shown, there is a less wholesome side to Parmalat.

No-one denies that the company operates one of the most formidable consumer-goods operations on the planet, but the finances underpinning it raise troubling questions.

Over the past decade of headlong international expansion, Parmalat has developed a global structure of bewildering complexity, at least in part to minimise its tax liability.

The company is listed on half-a-dozen stock exchanges, and produces detailed financial statements, but analysts suspect that the headline balance-sheet figures - currently some 6bn euros in debt and 4bn euros in assets - simply do not reflect reality.

On 19 December, Bank of America took the unusual step of rejecting as false a Parmalat document, which purported to show that the firm had 4bn euros stowed in the Cayman Islands.

Funny money

Even if Parmalat is able to produce its Cayman hoard, this sort of thing is seen as a pretty funny way for a modern multinational to behave.

Parmalat, its thrusting image notwithstanding, behaves worryingly like the tight-lipped family-controlled business it remains.

Analysts wonder, for example, why the company has not used its supposed cash pile to pay down its debts, instead issuing new bonds to replace the old.

They also want more details on Epicurum, a peculiar fund - based, again, in the Caymans - with which Parmalat has done substantial business, including an unexplained 500m-euro cash injection.

PricewaterhouseCoopers is now investigating Epicurum, as well as Bonlat, the company that produced the phoney documents for Bank of America.

Europe's next Enron

All this may, of course, be wholly innocent.

But European markets are spooked because it smells horribly like Enron, the US company whose global web of complex financial transactions brought down a fast-growing business.

Over the past couple of years, French media conglomerate Vivendi, Dutch supermarket Ahold and Italian car maker Fiat have all shown Enron-like qualities.

But Parmalat's particular fondness for large derivatives transactions - huge off-balance-sheet deals in complex financial instruments - makes it the closest apparent counterpart this side of the Atlantic.

Staying alive?

It is less likely, however, that Parmalat will disintegrate as completely as did Enron.

The company is tightly woven into both Italy's society and its financial system: many powerful forces have an interest in seeing it survive.

Prime Minister Silvio Berlusconi has already adjusted the laws on administration to give Parmalat a better chance of restructuring.

Its underlying business is certainly sound, which could not always be said of much of Enron's inflated empire of gas traders and electricity brokers.

And the company seems to be taking surprisingly rapid steps to clear up its mess.

The founding family was brusquely shunted from the management suite this week, and turnaround specialist Enrico Bondi has been installed in the top job.

Parmalat certainly needs every drop of Mr Bondi's unrivalled credibility.




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