The $904m paid by Parmalat for sister business Lactalis America Group (LAG) could be cut by up to $144m if auditors deem the initial purchase price to be excessive, the Italian dairy giant has revealed.
In a statement published on its website, Parmalat revealed that it had appointed auditors PricewaterhouseCoopers (PwC) to calculate a final price for the acquisition based on EBITDA earned by LAG in 2012.
Parmalat revealed last week that LAG reported pro forma EBITDA of just over $96m for the year ended 31 December 2012 – a figure in excess of expectations.
According to the company, the purchase price could be cut by up to $144m, or increase by up to $56m as a result of the audit.
The intra-group acquisition is currently the subject of civil and criminal investigations. The probes were sparked by concerns that BSA International, which owns both parties, pushed through the deal to drain Parmalat’s then €1.5bn cash pile.
Provisional acquisition price “adjustment”
Under the terms of the deal, Parmalat paid to “the seller” a provisional price of $904m – equal to the “Enterprise Value of the acquired companies.”
It was agreed that a “final price” based on the EBITDA earned by the acquired company in 2012 would potentially adjust this provisional price.
“More specifically, the price adjustments mechanism requires the following: if the Enterprise Value of the acquired companies is less than $904m, the seller shall pay to the buyer the difference, it being understood that the amount thus owed may not be greater than $144m; on the other hand, if the Enterprise Value is greater than $904m, the buyer shall pay the difference to the seller, it being understood that the amount thus owed may not be greater than $56m,” said the statement.
“PwC is expected to complete its work during the second decade of March,” the statement added.
Better-than-expected 2012 performance
Parmalat revealed LAG’s better-than-expected 2012 performance last week following a meeting of its Internal Control, Risk Management and Corporate Governance Committee.
The committee decided to disclose the information to “confirm the profitability” of the business and “clarify some true and exploitable news.”
The civil hearing into the acquisition, which is being chaired by three judges, heard closing arguments from Parmalat representatives and prosecutors earlier this month. A decision is expected before the end of March 2013.
In an “unorthodox” move in the final days of the hearing, the public prosecutor for Parma, Gerrado Laguardia, revealed that he had asked the court – should it decide against Parmalat - to appoint an administrator to replace the company’s board to facilitate an annulment of the LAG deal.