Parmalat scandal may get bigger

Talks to save Parmalat gathered pace yesterday as concern grew that a hole in the accounts of the global food group could be even bigger than feared, adding to a scandal that has been dubbed Europe's Enron.

Renowned turnaround expert Enrico Bondi, who took the reins at Parmalat last week, was meeting with bankers to decide how to file for protection from creditors and keep the producer of long-life milk and Archway cookies running.

Long-standing worries about Parmalat's habit of tying up its steady cash flow in complex investments exploded on Friday when it revealed a four-billion-euro hole in its accounts which Prime Minister Silvio Berlusconi called "almost incredible".

Yesterday, Italian media reported the hole could gape wider. Newspaper Corriere della Sera said Parmalat's former chairman had told potential investors in the group that Parmalat had not bought back €2.9 billion of bonds, as detailed on its books.

That would push total debt to almost nine billion euros, up from the six billion on its September 30 balance sheet.

Parmalat was not immediately available for comment. Parmalat - a household name from South America to Australia - dropped a bombshell on Friday by announcing that a document showing €3.95 billion held by a Cayman Islands unit had been declared false by Bank of America.

The news slashed its already battered share and bond prices to less than a third of face value.

It also turned up the heat in a struggle between the government and the Bank of Italy over who should rule over Italy's financial markets.

Prosecutors who took part in the "Clean Hands" corruption trials that toppled a political and business generation in the 1990s, took boxes of documents from Parmalat's auditors Grant Thornton and Deloitte & Touche on Saturday.

Charges could include fraud and providing false information to auditors, judicial sources said.

The missing four billion euros dwarfed a one billion-euro accounting scandal at Dutch retailer Ahold and drew comparisons with the collapse of US energy giant Enron and Italy's Ferruzzi empire in 1993.

Bondi, famous for creating a profitable company out of Ferruzzi's ashes, could ask the courts to put Parmalat in "controlled administration" as soon as Monday, an industrial source said on Saturday.

That would give Parmalat up to two years protection from creditors while it sorts through its finances and operating business spanning 30 countries with nearly 35,000 employees.

"Bondi and the banks continue with their meetings. They're working on the best structure to move forward," said a source close to the matter.

Protection cannot come too soon for Parmalat which faces a deadline today for the second instalment of a $400 million payment to buy investors out of a Brazilian unit. It missed payment on the first instalment last week.

Earlier this month, Parmalat failed to repay a E150-million bond on time despite €4.2 billion of liquidity on its balance sheet. That forced founder and former chairman Calisto Tanzi to hand management of his company over to Bondi.

Former finance director Fausto Tonna, criticised for squirrelling Parmalat's money away in complex investments, also resigned from the board and has apparently disappeared. Some newspapers said he might have fled to Venezuela.

Mr Berlusconi said the government would save Parmalat, Italy's eighth largest company. The cabinet is expected to discuss the crisis tomorrow.

Rivals and financiers have already said they are interested in picking up pieces of the Parmalat pie if it is broken up.

Without citing sources, Corriere said US investment group Blackstone Capital Partners had met Parmalat's former head Calisto Tanzi on December 9 to propose a buyout but walked away when Tanzi revealed the state of Parmalat's accounts.