French dairy group Lactalis on Tuesday launched a 3.4 billion euro ($4.9 billion) takeover bid for rival Parmalat
Lactalis will pay 2.6 euros per Parmalat share to create the world's biggest dairy group, with estimated combined annual revenues of 14 billion euros.
The French company's purchase of 29 percent of Parmalat in March had spurred Italy to look at ways to stop one of the country's best-known companies from falling into foreign hands.
Lactalis, Europe's largest dairy company, said it had decided to make the takeover offer because of an Italian government decree that would thwart its bid to acquire Parmalat.
Lactalis made its bid just hours ahead of a meeting between Italian Prime Minister Silvio Berlusconi and French President Nicolas Sarkozy in Rome.
Speaking at a joint press conference, Berlusconi said he hoped Italian groups would reach an accord with Lactalis after the French group's bid.
I do not consider the takeover bid a hostile takeover bid, Berlusconi said. He added that it was strange that the bid was launched on the day he was meeting Sarkozy.
Sarkozy said the French and Italian governments would name advisers to help bring the two sides together.
Berlusconi's center-right government has become concerned about French moves on Italian companies.
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Lactalis did the best thing they could do, Centrobanca analyst Simone Ragazzi told Reuters.
Parmalat shares were up 11.1 percent at 2.57 euros at 1233 GMT.
The Italian government has explored creating a French-style fund to invest in strategic companies using state holding Cassa Depositi e Prestiti (CDP).
A source close to the issue said CDP would hold a conference call with Italian banks Intesa Sanpaolo
But the chances of a possible Italian counter-bid remained unclear, Ragazzi said.
Italy's confectionery group Ferrero and domestic diary group Granarolo have had cold feet about joining an Italian consortium due to concerns over the eventual ownership structure.
We note that without the involvement of Ferrero or Granorolo, the industrial logic of a wholly Italian bid is significantly weakened, MF Global European Equity Research said in a note. Granarolo and Ferrero were not available to comment.
Lactalis, which owns Italian cheese brands Galbani and Locatelli, said it planned to keep Parmalat listed on the Milan bourse and maintain the headquarters in Italy.
Its offer represents a premium of 21.3 percent to Parmalat's share price over the past 12 months, Lactalis said.
2.60 euros is a fair price. The premium is not that great but the stock rose sharply previously, said Gertjan Van Der Geer, senior investment manager at Swiss private bank PICTET.
Lactalis can put Parmalat's cash to good use, he told Reuters.
Parmalat has been seen as an attractive target in part because of 1.4 billion euros cash accumulated mostly through litigation settlements following the group's rebirth from its spectacular collapse in 2003.
Analysts have said Parmalat, known for its long-life milk, could be strategic for Lactalis to grow beyond its cheese activities and expand in markets like Canada, South Africa and Australia where it has little or no presence.
Sales in Italy account for around 15 percent of the group's total revenues, analysts say.
European Union regulators have been following Italy's efforts fend off Lactalis to ensure any steps taken comply with the bloc's merger rules, the EU's antitrust chief said this month.
(Additional reporting by Ian Simpson and Nigel Tutt, Dominique Vidalon in Paris, Editing by Dan Lalor and Jane Merriman)
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