Danone, which owns brands including Evian and Danone yoghurts, is believed to be in the sights of PepsiCo -- however the group has denied that it has built a stake in the brand.
Shares in Danone rose to more than 13% yesterday following an overnight report in the Financial Times saying that PepsiCo has appointed Morgan Stanley and UBS to advise it on a bid.
The French government said it would be doing all it can to shield Danone from a "hostile takeover bid".
France's employment minister Jean-Louis Borloo described the company as a "jewel" and said it is special because Danone is "the product of our agricultural system".
The FT also cited speculation of a possible Danone bid by other US groups and of Nestle, a Swiss company, stepping in as a possible white knight. Danone is valued at €20.4bn euros (£14bn).
If PepsiCo does go ahead with its bid, a request must be made to French state institutional investors at least ten days ahead of an offer being lodged, with a final decision that could take up to three months.
PepsiCo is said to be keen to get a piece of the new healthier living consumers who are spending more money on healthy brands, in contrast to the falling sales of fizzy drinks.
Danone has recently moved its worldwide corporate-branding work for its dairy-products operation to TBWA\Worldwide, part of the Omnicom Group, after seven years with WPP Group's Young & Rubicam.
Y&R will continue to handle the product advertising for brands that include Actimel and Danone and the corporate initiatives will be led out of TBWA France.
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