Danone's surging share price may lead to full inquiry

The French stock market regulator, AMF, is considering a full-scale inquiry into this month's surge in the share price of Danone, the food group, and alleged manipulation regarding a putative takeover by PepsiCo.

AMF confirmed on Monday that PepsiCo had told it that it was not planning a takeover bid for Danone, sending the French group's shares down as much as 9 percent.

Unprecedented

The shares had risen up to 27 percent since the beginning of this month as the political establishment in France mounted an unprecedented campaign to keep Danone, the owner of Evian water, out of overseas hands.

It emerged that Gerard Rameix, the regulator's senior official, had been pressing the US soft-drinks group for several days to declare its intentions and had been warning Danone, investors and other players in the market of rules banning the spreading of "inexact, imprecise and deceptive" information.

An AMF spokeswoman said the regulator had been carrying out systematic surveillance of the buying and selling of Danone shares during recent weeks and technical inquiries were continuing.

"We are in a pre-investigation phase. It does not mean that there will be an investigation and it could take several days or even weeks to decide. And we may not make it public," she said.

Demands

Colette Neuville, the leader of the minority shareholders' defense group, Adam, has demanded a full-scale investigation to determine whether the rumors about Danone were the result of market manipulation and insider trading.

A series of senior politicians had publicly called for measures to defend Danone against a likely hostile bid from PepsiCo while the French media reported rumors that one was imminent -- and even, wrongly, that the US group had already bought a 3 percent stake.

Neuville said the ferocious media campaign had relied entirely on rumors but allowed some investors to make big profits.

Thierry Breton, the French finance minister, told Le Monde that the mobilization around Danone, which brought in French President Jacques Chirac and Dominique de Villepin, the prime minister, was "very good news."

A first

"It's the first time that the French have shown such passion for their own companies. One says too often that they are angry with their firms. I want to capitalize on this mobilization and take it forward," he said.

Breton, a former chief of France Telecom, urged French and other European firms to see off predators with sound business plans and close links with their shareholders.

But he said: "All capital is welcome. France has no future in protectionism and turning in on itself ... It's not the nationality of the capital that counts, it's the nationality of the business plan."