PARIS (Reuters) - French food company Danone (>> DANONE) said it lost to Swiss rival Nestle (>> Nestle SA) in a battle for U.S. drugmaker Pfizer's (>> Pfizer Inc.) baby food business because financial discipline prevailed over strategic interest.

Chief Executive Franck Riboud said on Thursday that the French yoghurt and biscuit maker would now focus on internal growth while seeking "to win other matches on a country-by-country basis".

Nestle said this week it would buy Pfizer's baby food business for $11.85 billion, beating out Danone in a struggle for dominance in fast-growing emerging markets.

"We had set ourselves limits, we did not wish to exceed these limits and Nestle won," Riboud said during the company's annual shareholder meeting.

"We're a little disappointed because this company had a true strategic interest for us, but strategic interest cannot justify everything."

Nestle may yet be forced to dispose of some parts of the Pfizer business to overcome regulatory hurdles.

Some analysts and banking sources predict that losing bidders Danone and Mead Johnson Nutrition (>> Mead Johnson Nutrition CO) will be joined by HJ Heinz Co. (>> H.J. Heinz Company) in a scramble for activities that are sold off.

(Reporting by Dominique Vidalon)