Groupe Danone has agreed to acquire an 88% stake in Poland's leading bottled water producer Zywiec Zdroj.

With a turnover of  €45m in 2001, Zywiec Zdroj is the leader in a Polish market of 1.3 billion litres of water per year, the largest in Eastern Europe. In April 2001, Danone took up a 50% stake in the company, which, the company said is experiencing strong growth.

The takeover has been approved by the Polish antitrust authorities.

Despite the news Dresdner Kleinwort Wasserstein has downgraded the French group to "sell" from "hold" and its target price to €115 from €125 because of the outlook of its water business.

"The arrival of Coca-Cola and PepsiCo in water will impact Danone more than Nestle . Water is 30% of Danone's EBIT (earnings before interest and tax), but nearer 50% of group growth," Dresdner analysts said in a research note.

However Danone has played down fears it is suffering at the hands of the cola giants, particularly in the US market. A spokeswoman said its fortunes were more closely linked to fast growing emerging markets.

The spokeswoman told Reuters yesterday that the US accounted for only 8% of volumes and 13% of sales in its bottled water division, which represents a quarter of Danone's total sales.

"Danone is a small player in the United States. It is much more orientated to emerging markets," the spokeswoman said, adding they represented 40% of its beverage division sales, and 60% of volume growth.