Danone announced on Monday that it was scrapping its bid for Serbia's leading bottled water company before that day's deadline, because of legal and political wrangling that erupted during the takeover process.
The incident has made investors nervous, and the government is anxious to allay any fears because of the importance of foreign investment to Serbia's economic development.
The departure of Danone from the bidding race has been swift. Two weeks ago, Danone and bidding partner Apurna thought they had bought Knjaz Milos, which owns well-known brands Knjaz Milos and Aqua Viva, only to hear that Serbia's Securities Commission had annulled the deal because extra money was offered to smaller shareholders if they sold to Apurna.
Bidding was re-opened a day later, with a deadline of 6 December, after crisis talks within the government. But by that stage the whole affair had descended into a public and investor relations nightmare with Commission members reportedly interrogated by Serbian organised crime police.
Accusations of bias were flung at deputy prime minister Miroljub Labus, several legal battles were launched in Serbian courts and rumours emerged claiming that the pro-western Serbian Democratic Party, belonging to president Boris Tadic, planned to gather enough opposition to bring down the government, citing Knjaz Milos as the culmination of many dubious government actions.
"Groupe Danone, which always seeks to work in full harmony within the environment where it operates, did not feel the necessary consensus and adequate conditions were met at this stage to proceed with an offer," it said, adding that a new corporate law may make it difficult for its domestic bidding partner, Apurna, to implement its strategy for Knjaz Milos.
Danone's departure was joined by that of Slovenian brewer, Pivovarna Lasko. The moves leave domestic firm FPP Balkan, already a current part-owner of Knjaz Milos alongside the government, as the only contender in the bidding race.
Danone will now wait for Serbia's authorities to sort themselves out before entering the market again. "Groupe Danone confirms its interest in investing in Serbia should such required consensus and conditions be reached, and in particular in Knjaz Milos in the event the opportunity to become its strategic partner still exists following the conclusion of the current take-over bid process," said the company.
There is a possibility of this as FPP Balkan had only bid for small stakeholders' shares, leaving the government lumbered with many of its existing shares for the time being.
The government, underlining the importance of foreign investment to Serbia's economic development, said in a statement that "it is necessary for all state bodies to take all necessary measures to ensure equal and lawful treatment of all investors", and "the Serbian government is resolute to ensure that all state bodies abide fully by the law".The Serbian government knows the Knjaz Milos affair has made investors nervous, but the question is how quickly their confidence can be regained.