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Chocolate-maker Pernigotti on the brink: how Italy’s approach to corporate rescue is hurting the country

Choc horror. Pernigotti

“Gianduiotti? Pernigotti!”. It’s one of Italy’s most enduring advertising slogans, entreating lovers of trapezoidal chocolate pralines to buy them from the company that invented them more than 90 years ago – Pernigotti.

Most people have heard of Ferrero, which is also made in the northern Italian province of Piedmont. However, Pernigotti has a far longer history of innovation and excellence. Pernigotti had been the official supplier of the Italian Royal Family for over 60 years before Ferrero was established. For Italians, Pernigotti is to chocolate as Ferrari is to cars.

In future, anyone indulging on the company’s range of chocolates, spreads and Easter eggs may no longer be buying Italian. The controlling Toksöz Group has announced it is closing the famous factory in the small Piedmontese city of Novi Ligure in north-west Italy and moving manufacturing to its native Turkey. The people are up in arms – and Pernigotti is trying to find a way to keep production within Italy.  

Novi Ligure has immediately lost 100 jobs, with another 100 still to go. The timing is particularly bad for the 20,000-strong population, who have only just breathed a sigh of relief after the local Ilva steel factory was saved in September, rescuing 755 jobs.

Yum yum. Pernigotti

Cases like these have become all too common in a country whose industries often struggle to successfully compete, particularly with developing countries. And in spite of jobs being saved at Ilva, they both also reveal serious problems with Italy’s approach to rescuing companies. It is a major drag on the economy, and desperately needs to be reformed.

Pernigotti melts away

Founded in 1861 as a grocery shop, Pernigotti became one of the leading Italian producers of chocolate treats. The company survived the destruction of its main production plant at the end of World War II, moving headquarters to the current factory in central Novi Ligure. But ever since two family heirs died in a car crash in 1980, the company has found it increasingly difficult to compete. It sold the Sperlari candy brand to Heinz in 1981 and then everything else to beverages group Averna in 1995, ending the Pernigotti family’s involvement.

In 2013 Averna sold to Toksöz, which has interests in everything from food to pharmaceuticals. Toksöz promised to internationalise Pernigotti, but the chocolate maker has since lost roughly £50m and changed chief executives four times. With high fixed costs, an outdated factory, and competition from giants including Nestlé, Lindt and the Piedmontese Ferrero, times remain tough.

Pernigotti Central.

This situation might have been avoided were there concrete mechanisms in Italian law to help restructure larger companies earlier. In the UK, for example, insolvent businesses that may still be viable can avoid the formal insolvency process by asking their creditors to enter into a company voluntary arrangement (CVA). This can make debt restructuring possible in a way where the owner retains control and trading continues. House of Fraser recently went through the CVA process, as has Jamie’s Italian.

But in Italy, the most common option for large insolvent companies like Pernigotti is to enter into amministrazione straordinaria. This is similar to British administration – except that where in England an administrator is appointed in law to act purely in the interests of the company, an Italian commissario giudiziale is a political appointment.

As a viable bigger group, Toksöz will probably never need to relinquish control of Pernigotti through amministrazione straordinaria. One wonders, however, if it might have attempted a CVA for the company at an earlier stage if it were possible – perhaps saving the factory in the process.

Politics and Italian rescues

Many other high-profile Italian collapses have had no choice besides amministrazione straordinaria. Apart from Ilva, which is the country’s largest steelmaker, examples include food group Parmalat (2003), white goods maker Indesit (2008), the shipping company Tirrenia (2010) and the airline Alitalia (2008 and 2017).

The heavy political involvement in amministrazione straordinaria is particularly problematic. Take Ilva, whose collapse was triggered by a court decision in 2012 to close Europe’s biggest steel plant in Taranto, southern Italy, amid a criminal investigation over pollution. The company was recently sold to Indian-owned ArcelorMittal. This was only possible after Luigi Di Maio, the deputy prime minister (and economic development minister) obtained a written promise from ArcelorMittal to employ 10,700 of Ilva’s 13,500 workers – as opposed to the 10,300 in the plan negotiated by the previous government.

This sounds like an achievement, but not really. Ilva only went into amministrazione straordinaria three years after the court decision in 2015 – and no serious restructuring has since been undertaken. Successive politicians insisting on influencing the deal have led to delays costing the Italian economy an estimated €16 billion (£13.9 billion).

There is also a troubling environmental dimension. Shortly after the court decision, the Italian government issued a decree allowing the activities and the pollution to continue regardless. And there has been no environmental redevelopment of the affected areas since.

Alitalia is another notorious case. Between 1974 and 2014, the government is estimated to have pumped some €7.4 billion into the troubled airline – not including the last loan of €900 million granted during the amministrazione straordinaria of 2017. It’s an example of how too many medium and large companies are propped up by financial and political support from local and central authorities in Italy.

Still facing turbulence. Wikimedia

Like Pernigotti, Alitalia has been punished for being insufficiently international. Too focused on regional flights, it has been hit hard by low-cost carriers like Ryanair. The business overhaul during the 2008 amministrazione straordinaria didn’t go far enough to prevent a second collapse. And, since last year’s amministrazione straordinaria, no business plan has been submitted because the commissari giudiziali (the Italian equivalent of English administrators) are waiting to see what the government wants to do with the company – renationalisation is one option.

The purpose of this Italian administration has not been to restructure, but to save jobs and share the loss with the country’s taxpayers. Though there are cases, such as Parmalat, where amministrazione straordinaria produced a decent turnaround, this only usually happens when the underlying business is very strong and little restructuring is required. Had Ilva and Alitalia gone through purely judicial administrations, there would probably have been quicker sales of good assets at a considerably lower cost to taxpayers.

Alas, Italy has just missed an opportunity for a rethink. The recent approval of a comprehensive reform of corporate rescue and liquidation procedures has not introduced any changes for large enterprises in crisis. A reform of amministrazione straordinaria was discussed in a separate bill that was not approved by the Senate. Even then, it would have streamlined the procedure but neither addressed political involvement nor the requirement for a company to be insolvent (and not simply in crisis, as is the case for CVAs) to file for amministrazione straordinaria.

When the Pernigotti announcement came on Wednesday November 7, local politicians reacted by saying they would fight this “absurd and unacceptable” decision and called for government intervention. The Ministry of Economic Development has already scheduled a meeting with the interested parties in Rome on November 15.

When companies run into trouble, Italy never seems to learn.

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