Senior managers in Parmalat SpA’s U.S. subsidiary (Parmalat USA)—many of whom were from the Italian parent company or other Parmalat entities—uprooted, cleaned out their offices, and left as the magnitude of the parent company’s fraud became known in late 2003. Parmalat USA had filed for bankruptcy in October 2003. With urgency and desperation, Enrico Bondi, the Extraordinary Commissioner of Parmalat SpA, had contacted the Milan office of AlixPartners, a global restructuring, consulting, and financial advisory firm. Bondi requested AlixPartners’ assistance in determining the cash situation at the U.S. subsidiary and helping lead the struggling division, which was now void of senior management. Jim Mesterharm, a managing director in AlixPartners’ Chicago office, was asked to lead this initiative as the chief restructuring officer. Parmalat SpA, often referred to as the Enron of Italy, was a trophy turnaround assignment at the outset for AlixPartners: for them, the worse the economic problem, the better the assignment.

Ninety days was enough time for Mesterharm and his team to determine what could be cut off and what discussions were needed with the U.S. vendors, customers, and employees. Mesterharm’s team changed the accounting methods from GAAP basis to cash basis. They constructed a 13-week cash flow model. Aggressive efforts were made to delay payables and to accelerate receivables to create cash. The battle to keep Parmalat USA afloat had begun.

The learning objective of the case is to:

1. Understand the circumstances leading to a catastrophic business failure and the required steps toward turnaround;
2. Learn how to manage multiple constituents through a dramatic turnaround situation;
3. Experience the role of a consultant in the turnaround process of a large company;
4. Expose students to international issues in management of turnarounds.

Grocery store chain Winn-Dixie had rapidly expanded in an effort to become a national retailer, and by 1999 it had more than 1,000 stores. The company began manufacturing its own products, reasoning that by owning more of the supply chain, it could offer the customer less expensive options. With its new geographic focus and manufacturing facilities, Winn-Dixie attempted to secure a position as a low-cost provider with a national presence.

Instead of improving the company’s position in the market, however, this strategy crippled both the short- and long-term prospects for Winn-Dixie. The company paid a high premium to expand and increased its leverage without ever realizing the purposed synergies. In fact, there were dis-economies of scale because the distribution, marketing, and administrative costs had risen along with the increased revenue. The expansion and inefficient manufacturing added complexity to its distribution network, and with a greater debt load and less cash, the company was unable to reposition itself in the market when its low-cost provider strategy failed. Not only was the company unable to pursue other opportunities but it also did not have the cash to properly maintain many of its existing stores, which quickly became run down. Winn-Dixie was stuck as a general grocer with few options at a time when the industry was rapidly evolving.

Following faulty strategies of expansion, supply chain changes, and increased debt, Winn-Dixie declared bankruptcy.

Grocery store chain Winn-Dixie had rapidly expanded in an effort to become a national retailer, and by 1999 it had more than 1,000 stores. The company began manufacturing its own products, reasoning that by owning more of the supply chain, it could offer the customer less expensive options. With its new geographic focus and manufacturing facilities, Winn-Dixie attempted to secure a position as a low-cost provider with a national presence.

Instead of improving the company’s position in the market, however, this strategy crippled both the short- and long-term prospects for Winn-Dixie. The company paid a high premium to expand and increased its leverage without ever realizing the purposed synergies. In fact, there were dis-economies of scale because the distribution, marketing, and administrative costs had risen along with the increased revenue. The expansion and inefficient manufacturing added complexity to its distribution network, and with a greater debt load and less cash, the company was unable to reposition itself in the market when its low-cost provider strategy failed. Not only was the company unable to pursue other opportunities but it also did not have the cash to properly maintain many of its existing stores, which quickly became run down. Winn-Dixie was stuck as a general grocer with few options at a time when the industry was rapidly evolving.

Following faulty strategies of expansion, supply chain changes, and increased debt, Winn-Dixie declared bankruptcy.