Italian Prime Minister Silvio Berlusconi yesterday said his government would save food group Parmalat, which has revealed a four-billion-euro hole in its accounts in a scandal reminiscent of the bankruptcy of Enron.
As prosecutors launched a fraud investigation, a new emergency management team at the global dairy firm was working on a rescue plan, which an industry source said would include a request for protection from creditors.
Berlusconi told reporters the Economy Ministry was working on plans to "preserve the industrial part of Parmalat which... is part of the country's wealth".
Parmalat is one of Italy's best known brand names and has nearly 35,000 employees in 30 countries with annual revenues of more than €7.5 billion (Lm3.23 billion).
But concerns about apparently risky financial investments turned into outright panic on Friday when it announced that a document showing €3.95 billion held by a Cayman Islands unit had been declared false by the Bank of America. The news, described by Berlusconi as "almost incredible", raised the prospect that Parmalat might file for bankruptcy.
Parmalat said late on Friday it was still looking for "the plan of action most suited to the current situation". Under Italian bankruptcy law Parmalat could be placed under "controlled administration", which would give it up to two years of protection from creditors while attempting a turnaround. The industrial source said Parmalat could send its request for controlled administration to a court as early as tomorrow.
Berlusconi, speaking at an end-of-year news conference, said Parmalat might be discussed at a Cabinet meeting on Tuesday. The government was already under pressure over the 2002 collapse of a smaller food group, Cirio. Berlusconi promised reforms to prevent similar cases in future.
"The system of controls we have inherited... has shown it does not work, so the government must intervene to restore the country's confidence and the country's reputation too," the billionaire prime minister said.
The missing €4 billion dwarf a €1 billion accounting scandal at Dutch retailer Ahold this year. Comparisons were also drawn with the spectacular fall into bankruptcy of US energy trading group Enron two years ago amid accounting irregularities.
"This case has the same characteristics as the Enron case. I only hope the system reacts not with vendettas... but in the same way the Enron case was dealt with, by renewing the system of controls," EU Commission President Romano Prodi told reporters.
In Milan, judicial sources said investigators probing Parmalat were considering possible charges that included providing false information to auditors as well as fraud.
Police searched the Milan offices of auditors Grant Thornton, the firm that certified the 2002 accounts of Parmalat's unit in the Cayman Islands, and of Deloitte & Touche, auditors of the Parmalat group accounts, justice sources said. Neither auditor could immediately be reached for comment.
Parmalat's battered shares slumped a further 66 per cent on Friday, giving the firm barely a tenth of the stock market value it had just more than a week ago. Its bonds are worth just 26 per cent of face value.
Parmalat said on Friday newly installed chairman and chief executive Enrico Bondi, a veteran Italian turnaround expert, would ask justice authorities to consider possible criminal action. But it did not say against whom action might be taken. The judicial sources in Milan said no one had yet been identified as a possible target for their probe.
Parmalat's founder Calisto Tanzi quit as chairman and chief executive on Monday, leaving the business he had inherited from his father as a small delicatessen and turned into a global brand. A string of acquisitions around the world landed Parmalat with debts of €6 billion on its balance sheet.
A banking source told Reuters on Friday that Parmalat's total debts could be as much as €10 billion and about a third of that amount was owed to Italy's banks, with the rest held by bondholders and foreign banks.