Danone will look at assets Nestle may need to sell to get its baby food deal with Pfizer cleared, as the French food group is keen to expand in baby milk in Latin America, mainly Mexico, and catch up with its Swiss rival.

Danone, world No. 2 in baby food, lost out to market leader Nestle in April when it bought U.S. drugmaker Pfizer's brands for $11.85 billion and secure dominance of fast-growing emerging markets.

Nestle may have to sell up to 30% of the Pfizer businesses, including those in Asia, Latin America, and the Middle East, analysts have said, to satisfy competition regulators in a process that could take a year..

High profitability and growth rates - the $30 billion global infant nutrition market is growing 10% annually - have lured global food companies to the market.

Baby milk is among the most consumed products in emerging markets due to increasing births and affluence.

"If there are opportunities that emerge in the coming months, obviously we will look at them and more closely in areas where we want to expand, starting with Latin America, which is our global priority, from Mexico to Patagonia," Danone head of communications Laurent Sacchi told Reuters.

Danone, owner of the Aptamil and Bledina brands, has a very strong presence in Europe and Asia, apart from the Philippines, and could boost its foothold in the Americas, he said.

Mexico, the world's fourth-largest baby milk market after China, the United States and Indonesia, is of particular interest to Danone which has a presence there in dairy and water, with the Banafont brand.

Infant formula

Nestle, which has said previously it could take up to a year for the Pfizer deal to close, would not comment on the matter.

Danone's baby nutrition sales reached €3.7 billion ($4.6 billion) last year, nearly a fifth of the group total. The unit posted double-digit sales growth and the operating margin widened to 19% from 18.2% in 2010, driven by China and Indonesia.

Danone is keen to expand in infant formula, which accounts for 80% of sales in its baby nutrition division.

"For us it is more interesting to expand in a sector where we are the strongest, and that is infant formula ... That is where the growth is and that is where we can make a difference through research," Sacchi said.

Danone, which bought Dutch baby food maker Numico in 2007 for €12.3 billion, has been relying on organic growth to expand in the sector in the past four years, making just one small acquisition in India last year.

Sacchi said: "External growth saves time. If we can do it in countries we can enter under acceptable financial and economic terms, we will do it."

Chief executive Franck Riboud told shareholders last month that with a net debt of €6.6 billion at the end of 2011, Danone lost the Pfizer assets because financial discipline prevailed over strategic interest..

Nestle paid 19.8 times expected 2012 core earnings under the deal. The assets it might have to dispose off could be sold for over $2 billion but Danone will have to fight off interest from another losing bidder - Mead Johnson Nutrition - and from HJ Heinz whose infant formula operations are relatively small in most countries, analysts said.

In Latin America, Mead Johnson may run into antitrust problems of its own.

"The two players who have very small market shares in that region are Danone and Heinz. In the Philippines, they are also the best positioned but Nestle could also seek an alternative (buyer)," Natixis analyst Pierre Tegner said.

Analysts say Nestle would probably be a reluctant seller to its main rivals and, despite having paid a heady price to win the Pfizer assets, it might be prepared to sell some at lower multiples to lock rivals out.

"It is in Nestle's interest to sell the assets in parts to local players or private equity groups rather than help Danone, Mead Johnson or Abbott achieve critical mass in countries where they are small and even lack position," said one analyst, who asked to remain anonymous.

"Strategically, for Nestle it might be worth selling the Philippines or Mexico for $500 million less (than planned) but securing its dominance," he said.

Were Danone to miss out even on scraps of the deal, it could grow organically though this could mean stepping up capital expenditure, analysts said.