Speculation over an £800 million bid for Dairy Crest sent shares in the maker of Cathedral City and Country Life butter up by as much as 20 per cent in early trading.
A report said French rival Lactalis was considering an offer worth 630p a share.
While Dairy Crest cooled some of the speculation by saying it had not held talks with Lactalis, the stock remained ten per cent higher at 530p.
A deal would give Lactalis a 60 per cent slice of the UK cheese market. Dairy Crest Group said it has not received a formal approach.
The 630p a share Lactalis is rumoured to be thinking about is a considerable premium on Dairy Crest's closing price on Friday of 482.5p.
Shares changed hands at up to 572p yesterday but fell back after Dairy Crest told the City it had not received an approach.
A spokesman for Lactalis said: "Lactalis is a privately owned business and it is not and never has been a policy to comment on speculation of this kind."
The interest in Dairy Crest comes as the group battles soaring fuel prices and demands from the supermarkets to cut prices.
While Lactalis is famed for its President butter and soft cheeses, it expanded into the cheddar market earlier this year when it bought Scotland's McLelland Seriously Strong brand.
Panmure Gordon analyst Justin Scarborough said: "We believe that such a deal could make strategic and financial sense for Lactalis."
Dairy Crest is the UK's second largest dairy company behind Lurpak butter maker Arla.
It began life as the milk processing operation of the Milk Marketing Board in 1933 and now employs 7,000 people with brands such as Utterly Butterly, St Ivel Gold, Country Life, Davidstow, as well as the Yoplait brands Frubes and Yop.
Profits at Dairy Crest fell in the six months to September 30, from £32 million to £17 million after it lost deals to supply milk to Asda and Tesco, although it recently won a new milk contract with Morrisons.
The company said the second half of the year would be boosted by cheese price increases while it was expanding its range of "brain boosting" products - spreads and yoghurts which are thought to improve concentration and are good for the heart.
Lactalis is the seventh largest dairy group in the world with markets in more than 140 countries and a turnover of 5.5 billion euros (£3.7 billion).
As well as President cheese and butter, the Laval-based company makes creme fraiche and owns the Locatelli range of Italian cheeses. It also has brands such as Societe, Lanquetot, and Lou Perac. ..SUPL: