updated 7/19/2005 11:53:32 AM ET 2005-07-19T15:53:32

Shares in Groupe Danone SA, the world’s largest dairy products maker and No. 2 bottled water producer, soared Tuesday on rumors of a possible bid by U.S.-based PepsiCo Inc.

Both companies declined to comment on the likelihood of a bid after Danone shares rose as much as 14 percent before settling back to 87.55 euros ($104.75) in late trading, 10.1 percent above Monday’s close and still the Paris market’s biggest gainer.

PepsiCo spokesman Tod McKenzie repeated the company’s July 6 denial of a press report that PepsiCo had acquired 3 percent of Danone, the maker of Dannon yogurt and Evian mineral water, but stopped short of denying that an offer was being considered.

“Our practice is not to comment on rumors or speculation about our company or its portfolio of businesses,” McKenzie said.

Analysts said speculation was fueled by reports that the French government is taking seriously the “threat” of foreign takeover of Danone.

Finance Minister Thierry Breton has already “taken charge of the case,” said Patrick Ollier, the conservative chairman of the French parliament’s economic affairs committee, in an interview with LCI television on Monday evening.

Ollier, a member of President Jacques Chirac’s governing Union for a Popular Movement, also said in an interview published Tuesday that state-owned bank CDC could be used to fend off any foreign takeover bid for Danone.

“I find it scandalous to see the jewels of French industry going overseas, especially under the banner of Pepsi-Cola when we’re talking about Danone, the symbol of French dairy products and French quality,” Ollier told financial daily Les Echos.

A Finance Ministry spokesman declined to comment on Breton’s stance toward a possible bid for Danone by PepsiCo, which also makes Fritos chips and Lipton ready-to-drink teas.

he French government has recently suffered humiliating defeats in a May EU constitution referendum and in its failed bid to stage the 2012 Olympics in Paris. With Chirac’s approval ratings at an all-time low and the economy stagnating, ministers could come under heavy pressure to defend Danone, analysts say.

Paris brokerages SG Securities and Fideuram Wargny have also predicted that a PepsiCo offer could spur a “white knight” bid from Swiss rival Nestle SA.

“If Pepsi wants to take over Danone they will have to give Nestle a share of the pie,” said Fideuram analyst Cedric Louboutin.

But Nestle spokesman Francois-Xavier Perroud said the two companies’ sizable market shares in bottled water and dairy products would make antitrust approval for any tie-up impossible to obtain. Danone is the Europe’s largest yogurt maker, with Nestle in the No. 2 position, while Nestle is the biggest water producer — followed by Danone.

“There’s no way in the world that any antitrust authority is going to give the green light for any sort of cooperation between Danone and Nestle,” Perroud said.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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