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 
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¶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