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UPDATE 1-Danone may take legal action over dairy recall-Fonterra CEO

Naomi Tajitsu
Monday, 2 Dec 2013 | 12:51 AM ET

(Adds details on commercial agreements, additional comments )

WELLINGTON, Dec 2 (Reuters) - New Zealand dairy exporter Fonterra said on Monday it may face legal action from France's Danone over the recall of infant formula containing a potentially contaminated Fonterra ingredient.

In August, Fonterra said it had found a potentially fatal ingredient contained in a range of products sold by a number of multinational companies.

After recalls were issued across nine countries including China and Malaysia, the food safety scare turned out to be a false alarm because the ingredient was found to contain a less harmful bacteria.

Danone is seeking full compensation for what it says were 350 million euros ($476 million) in lost sales following the recall of its infant formula products in Asia and New Zealand. The two sides started negotiations in October to try to resolve the dispute.

"We're still in talks (with Danone)," Fonterra CEO Theo Spierings told Reuters in a telephone interview. "I put a commercial proposition on the table at the end of October and I haven't heard back on that proposition.

"If their counterproposal is commercial, I would of course entertain a commercial discussion. If their reply is legal, then we would have a different discussion."

At an annual meeting of the co-operative's shareholder fund on Monday, Spierings said that dispute negotiations initiated by Danone in September over the issue had not yet reached an agreement.

"In Danone's case...we have worked on a commercial solution for months," he said. "That appears to be a route that is not working out."

Fonterra has earmarked NZ$14 million ($11.38 million) to deal with recall-related issues and Spierings said that the funds have yet to be tapped.

As the issue between Danone and Fonterra drags on, commercial agreements with six of the eight firms affected by the recall had been reached and Spierings said he was "very, very close" to reaching a commercial solution with an affected nutritional company.

U.S. company Abbott Laboratories recalled its infant formula products containing the questionable ingredient in China and Vietnam and the company said it took a $90 million hit in lost sales in the third quarter and expected sales would suffer into the first half of 2014.

Other companies affected by the recall include Coca-Cola China, Chinese beverage maker Wahaha, and animal feed and nutritional products manufacturers in Australia and New Zealand.

($1 = 0.7353 euros)

($1 = 1.2308 New Zealand dollars)

(Editing by Matt Driskill)