Posted on 12/24/2003 6:42:54 AM PST by HAL9000
ROME (AP) -- Parmalat, the Italian dairy giant, filed for bankruptcy protection on Wednesday as a multibillion dollar cash crunch prompted the government to pledge regulatory reforms to prevent such future financial problems.Meanwhile, prosecutors looking into the Parmalat financial scandal ordered a search of the founder's home.
The Parmalat scandal exploded last week when the company acknowledged a multibillion dollar hole in its balance sheet. The tangled case has expanded as prosecutors look into whether fraud was committed on a massive scale.
The company announced the bankruptcy filing in Rome. Dow Jones newswires quoted a source close to the situation as saying Parmalat made the filing with the Italian Industry Ministry and the Parma Prosecutor's Office. The source was not named.
The move was widely expected as the company struggled with a scandal over billions missing from its balance sheet.
Some have dubbed the case "Europe's Enron," and a feared collapse could have widespread effects. Parmalat, long a model of northern Italian industrial success, employs 36,000 people in 29 countries.
The scandal may also bring major changes to Italian business oversight. Premier Silvio Berlusconi's Cabinet promised reforms in the regulatory framework.
The scandal erupted Friday when Parmalat revealed that Bank of America Corp. did not have about $4.9 billion of its money, as the Italian company had reported in September. The bank says the letter guaranteeing the funds was fake, and prosecutors are investigating whether any crimes were committed.
The ANSA news agency said prosecutors now believe the total hole in Parmalat's balance sheet may be almost about $8.5 billion, after the discovery of $3.6 billion in bonds Parmalat said it had bought back but had not. They are also investigating whether a scanning machine was used to falsify Bank of America documents, it said.
The government's rescue plan would involve the appointment of a special commissioner to draw up a restructuring plan, which must then be approved by the Industry Ministry. The government said it will choose Enrico Bondi, recently appointed Parmalat CEO after company founder Calisto Tanzi was ousted, for the commissioner post.
Industry Minister Antonio Marzano indicated that the commissioner should avoid a wholesale sell-off. "The main brief of the commissioner is to overhaul the company, and not to sell the company's assets," he said.
Tanzi founded the company in 1961 and ran it until earlier this month, when he was replaced by Bondi. Shortly thereafter, Parmalat's financial woes were revealed.
The company, which has annual sales of around $9.2 billion, produces and sells milk, yogurt, juice and other food products in Europe, the United States and around the world. It is based in Parma, about 250 miles northwest of Rome.
Parmalat grew to success as a family run enterprise and became one of the emblems of northern Italy's business prosperity. Other northern Italian companies run by families include the Fiat automaker in Turin, Benetton apparel in Treviso, and Berlusconi's Mediaset in Milan.
The government also said Tuesday it would ask the European Union Commission to grant "crisis" status to the nation's dairy industry -- a move aimed at injecting fresh cash into the sector.
In Brussels, spokesman Thorsten Muench said the Commission's agriculture unit would ask the Italian government to explain the type and amount of aid planned.
Parmalat's total debt as of Sept. 30 was around $7.3 billion.
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