Danone shares fell 7.5 per cent on Monday after the AMF, France's stock market regulator, said it had received confirmation from PepsiCo that it was not preparing a bid for the food multinational.

However, PepsiCo last night denied that it had directly discussed Danone with the AMF, leaving a lingering uncertainty about the situation. It insisted it had only confirmed that it was in compliance with all rules governing mergers and acquisitions.

Asked for clarification, the AMF accepted that Danone had not been directly mentioned by PepsiCo, but maintained that the US company's statement amounted to a confirmation that it was not preparing a bid.

Danone's shares rose 16.5 per cent last Tuesday and Wednesday as speculation hardened that PepsiCo might bid. The Financial Times reported on Wednesday that the US soft drinks and snacks group had engaged investment banks Morgan Stanley and UBS to advise on a possible takeover move.

However, political opposition also gathered pace as French ministers denounced the possibility of a foreign purchase of what Dominique de Villepin, prime minister, described as a national "jewel". Danone, the world's leading producer of fresh dairy products, has a strong position in the biscuit and bottled water markets, owning the Lu, Evian and Volvic brands. Nicolas Sarkozy, interior minister, said ministers would mobilise shareholders to block any such offer.

A person familiar with the situation said PepsiCo was taken aback by the negative reaction.

Danone shares fell €6.65 to €81.80 on Monday. They had already dipped 5.2 per cent on Thursday after Franck Riboud, Danone chairman and chief executive, said there had been no recent contact with PepsiCo or any other foreign suitor.

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