Parmalat’s U.S. Dairy Units in Chapter 11
Italian food producer Parmalat put its U.S. dairy operations under Chapter 11 bankruptcy protection Tuesday and said it would sell them to pay creditors.
Its three U.S. dairy units -- Farmland Dairies, its parent Parmalat USA Corp. and Milk Products of Alabama -- filed for protection with the U.S. Bankruptcy Court in Manhattan after vendors and bank lenders balked at extending credit.
The move follows Parmalat’s bankruptcy filings in Italy on Dec. 24, and later in Brazil and the Netherlands, in one of Europe’s worst financial scandals. The company’s new managers recently said Parmalat had underreported debt by about $16 billion and inflated profit and revenue.
The U.S. filings are intended to help maintain value in the U.S. businesses during the sales process. Parmalat said it had several potential buyers but did not name them. Eighteen people, including founder Calisto Tanzi, have been arrested in connection with Parmalat’s collapse.
Eleven U.S. representatives, including five Securities and Exchange Commission inspectors and officials from the Justice Department, traveled to Parma on Tuesday to meet Italian prosecutors, people familiar with the matter said.
The SEC in December charged Parmalat with securities fraud over a $1.5-billion bond sale. Bank of America Corp., Citigroup Inc. and Morgan Stanley are among seven institutions being probed in Italy in connection with Parmalat, Italian news reports said.
The U.S. dairy operations mainly sell milk and dairy products in New York and the Southeast under Farmland, Welsh Farms and other brand names.
Farmland and Parmalat USA are based in Wallington, N.J., and Milk Products in Decatur, Ala.
A court filing shows the units lost $12.5 million last year on sales of $577.5 million. The units listed assets of $414.4 million and liabilities of $316.4 million, including $10.1-million owed to Comerica Inc.
Citibank, UniCredito Italiano and other banks helped push the businesses into bankruptcy by refusing to extend credit, court filings show.
Parmalat’s U.S. dairy business suffered as suppliers began demanding cash on delivery or prepayment, a court filing says. About 500 dairy farms still provide milk, but 350 others stopped after Jan. 18 because the company paid farmers late.
“Extensive media coverage of [Parmalat’s] financial situation and allegations of wrongdoing had serious adverse consequences for the debtors’ business and negatively impacted the debtors liquidity,” James Mesterharm, a principal at AlixPartners, said in a filing. The restructuring firm is advising Parmalat on its U.S. business.
Parmalat said the filings should not directly affect other North American businesses, including its Archway cookie and Canadian businesses.
