Fonterra has confirmed it is in talks with French food giant Danone following the whey protein contamination scare.
The discussions between the New Zealand dairy co-operative and the owner of the Nutricia brand are confidential, with a view to reaching a mutually acceptably commercial outcome.
However, some aspects of the discussions were made public in the media on Wednesday.
According to the New Zealand Herald, Danone is arguing it suffered major brand damage in a recall of infant formula across nine countries that cost it up to euros200 million euros ($NZ326.42m).
That suggests it may be seeking much more than the $14 million Fonterra chief executive Theo Spierings has said his company set aside for settling any damages claims.
The paper also said Danone executives met Prime Minister John Key at a reception at the embassy in Paris, and were told the buck should stop with Fonterra, not the government.
In a short statement on Wednesday morning, Fonterra confirmed Danone discussions remain ongoing "but strongly denies any legal liability to Danone in relation to the recall".
Danone has previously said it expected its baby nutrition division's third-quarter sales to be lower because of the food safety scare.
Fonterra issued a worldwide recall of products in August after testing revealed some batches of its whey protein, which is used to make infant formula, were potentially contaminated with a botulism-causing bacteria.
Further testing showed the bacteria wasn't present and there was never a health risk.
Danone said it recalled some infant formula from eight markets as a precaution, which significantly hurt sales in Asia.
Nutricia recalled two lines of its Karicare infant formula in New Zealand.