The French food giant Danone admitted today that it was in exclusive talks with its US rival Kraft Foods, the maker of Ritz crackers and Oreo cookies, about the sale of its biscuit division for €5.3 billion (£3.6 billion). Brands include Tuc, Prince and Lu,

The price was higher than expected, and Danone shares, which had been suspended before an announcement from the company, jumped 3 per cent on the Paris exchange to €62.78 soon after trading resumed.

The French group confirmed reports that it had received an offer from Kraft for its biscuit division, which generates annual sales of about €2 billion from 20 countries and whose Lu biscuits have been a favourite of French schoolchildren since 1886.

Danone said that the Kraft deal did not include the company’s interests in the Bagley biscuit business in Latin America nor Britannia in India.

Franck Riboud, the Danone chairman, said: “This transaction will give the group an opportunity to focus ... on the rapid expansion of its activities in two health-related areas: fresh dairy products and beverages based on source and mineral water.”

The deal is likely to hit regulatory and political hurdles, because it would give Kraft a dominant slice of the European biscuit market and is expected to trigger automatically an EU competition investigation.

Several years ago, when Pepsico was rumoured to be eyeing a takeover of Danone, the political dispute in France led to yoghurt being declared a "strategic industry" immune to foreign takeover.

Danone said that a final agreement between the two companies could be signed in the last quarter of the year, adding that Kraft Foods had agreed that it would not close any industrial site in France for three years after the signing of an accord.

Guy Francheteau, an analyst for the Fideuram Wargny brokerage, said: “The timing of the deal seems right for getting the optimum price from Kraft” at a moment when Britain's Cadbury Schweppes is also refocusing its activities after the sale of its drinks unit and as United Biscuits, another British group, is targeting the same market as Lu.

“What remains to be determined is the attitude of Brussels [the European Commission] and other competition authorities in Europe as well as the ’economic patriotism’ advocated in the past by French politicians to defend Danone’s assets,” he added.

The sale of the biscuit unit would also reignite speculation on the possibility of an overall bid for Danone by some of its rivals, such as Pepsico or Nestlé.

Union leaders at Danone are hoping to play up patriotic fears of Lu biscuits falling into foreign hands to try to block the deal and have declared that they want to "stay French".

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