Groupe Danone SA and Unilever stock also rose in Europe

Shares of Nestle SA, the world's largest food producer, advanced after the Wall Street Journal reported that the company discussed a merger with PepsiCo Inc., prompting speculation of more deals among snack and drink makers.

Groupe Danone SA and Unilever stock also rose in Europe. Vevey, Switzerland-based Nestle and PepsiCo, located in Purchase, New York, dropped the talks because of issues including the complexity of combining two companies of their size, the Journal said, citing people familiar with the situation.

``It does signal there is a bit of a consolidation wave,'' said Marco Gulpers, an analyst at ING Financial Markets in Amsterdam. ``We've seen a tremendous amount of deals over the last 18 months. It's still a little bit of a sellers' market and more could happen.'' Gulpers has a ``buy'' rating on Nestle.

Danone this month offered to buy Royal Numico NV, the maker of Cow & Gate baby food, for 12.3 billion euros ($17 billion). Nestle, the maker of Neslac and Good Start infant formulas, agreed in April to acquire Novartis AG's Gerber brand for $5.5 billion.

Shares of Nestle climbed as much as 15 Swiss francs, or 3.2 percent, to 479.25 francs in Zurich and were up 3 percent at 478 francs. Shares of PepsiCo rose 30 cents to $66.43 at 9:44 a.m. in New York Stock Exchange composite trading.

``No one who has the slightest acquaintance with Nestle will put any weight in this report,'' company spokesman Francois Perroud said. The food producer's acquisition policy has been explained by executives, he said by telephone.

PepsiCo Plans

PepsiCo spokesman Mark Dollins declined to comment on the speculation. He reiterated Chief Executive Officer Indra Nooyi's comments from April, when she said PepsiCo was considering acquisitions that ``range in size from businesses that are $5, $10 million'' to some deals that could be ``a couple of billion dollars.''

Nestle has committed about $10 billion since 2005 to buying nutrition companies, whose sales are growing faster than the rest of the food industry.

PepsiCo approached Nestle, the maker of KitKat chocolate bars and Stouffer's frozen foods, the Journal reported. The Swiss company was concerned about whether adding PepsiCo's Frito-Lay snack foods, such as cheese-flavored Cheetos, might weaken its goal of focusing on ``wellness'' products, the newspaper said.

For Nestle, a merger with PepsiCo ``would be against their strategy of transforming into a health and wellness company,'' said Claudia Lenz, an analyst at Bank Vontobel in Zurich who gives the company's stock an ``outperform'' recommendation.

Shares of Danone, the world's largest yogurt maker, rose as much as 3.4 percent in Paris and traded 1.84 euros higher at 57.62 euros. Unilever stock climbed as much as 2.7 percent in Amsterdam.

by:bloomberg.com