Parmalat - The Fall of a Dairy Giant

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Case Details:

Case Code : FINC028
Case Length : 14 Pages
Period : 2003 - 2004
Pub. Date : 2004
Teaching Note : Available
Organization : Parmalat Finanziaria SpA
Industry : Dairy Products
Countries : Italy

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction Contd...

In fact, in December 2002, analysts at Merrill Lynch6 advised investors to sell the company's shares on the grounds that the company's finances lacked transparency. Analyst Joanna Speed (Speed) prepared an 18-page report on the company, in which she warned investors about the risks of holding on to Parmalat stock. "We consider that management's regular tinkering with the balance sheet to little obvious benefit of the group undermines investor confidence and overhangs the share price," wrote Speed.7


The roots of Parmalat can be traced back to 1961, when Tanzi inherited a family food processing business that was started by his grandfather.

"Tanzi Calisto e Figli - Salumi e Conserve" (Tanzi Calisto & Sons - Cold Cuts and Preserves), produced processed foods like seasoned ham, cured meat and tinned tomatoes. Tanzi, who had a strong entrepreneurial streak, was not satisfied with simply running the family business and decided to diversify. He ventured into dairy products and built a milk pasteurizing8 plant in Collecchio near the city of Parma.9 The milk produced at the plant was supplied to Parma and surrounding towns, mainly through door-to-door sales.

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In 1963, the name Parmalat was given to the company. (Parmalat meant 'milk from Parma', and latte was Italian for milk). Parmalat produced the first branded milk in Italy.

Tanzi also started packaging the milk in a tetrahedron pack, which came to be known as 'Tetra Pak'.10 The Tetra Pak was more hygienic than ordinary packaging and extended the shelf life of the milk by three days. The originality and unique appeal of Parmalat milk soon made it very popular and business expanded to other parts of Italy.

In the early-1960s, dairy shops were set up in the provinces of Liguria and Tuscany. Parmalat was marketing-oriented from the start and advertised aggressively to increase brand recognition. Door-to-door advertising, delivering products in vans painted prominently with the brand name and a commitment to developing new products ensured that the company gained popularity...

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6] A New York based firm offering a variety of financials services to private, institutional and government clients.


8] Pasteurization is the process of heating a beverage or other food to a specific temperature for a specific period of time in order to kill microorganisms that could cause disease, spoilage, or undesired fermentation.

9] Parma was considered a center of culinary excellence in Italy. Tanzi traded on this image in marketing his products.

10] The pack was developed by a Swedish company of the same name.


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