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Kraft starts clock on unchanged Cadbury bid

Kraft Foods posted its offer to Cadbury shareholders with terms unchanged on Friday, triggering a two-month, Ł10.1 billion ($16.8 billion) takeover fight for the British chocolate maker.

Kraft's formal bid matches its indicative offer, worth 300 pence in cash and 0.2589 new Kraft shares for each Cadbury share, which the US food giant said valued Cadbury shares at 713 pence.

Many analysts still expect Kraft to have to pay 800 pence or above to win over Cadbury shareholders, in view of the UK firm's current share price and its upbeat third-quarter trading.

“To ward off other rival bidders and to appease Cadbury shareholders, they are most likely going to improve the offer, whether it means improving the price or the cash level of the offer,” said Morningstar analyst Erin Swanson.

Cadbury has rejected Kraft's cash and shares bid, first disclosed three months ago, forcing Kraft to turn hostile in early November and go directly to Cadbury shareholders in its aim to create the world's largest confectionery group.

“We remain confident that the unique combination of Kraft Foods and Cadbury would create a significant growth opportunity for both businesses,” said Kraft Chairman and CEO Irene Rosenfeld after publication of the offer document.

“Our offer is fully financed, represents a substantial premium to Cadbury's unaffected share price and provides both immediate value certainty and meaningful longer-term upside potential,” she added.

The document outlining the unchanged terms of Kraft's bid means that Friday is Day 1 of a 60-day timetable under UK takeover rules, giving the American giant until early February to convince Cadbury shareholders to accept its bid.

Cadbury has 14 days, or until December 17, to issue its defense document, while Kraft has until Day 46 to raise its bid. A rival bidder can unveil its hand any time up to Day 60, which would have the effect of resetting the takeover timetable to zero.

Italy's Ferrero and US-based Hershey Co have said separately they are considering making a bid for Cadbury. Analysts say the two firms may look at a joint bid, and have cited Nestle as a possible partner in a Hershey bid.

Kraft's Rosenfeld has taken a slow methodical approach to the bidding process being determined not to overpay, prompted by her view a rival bidder is unlikely to emerge, analysts say.

Cadbury Chief Executive Todd Stitzer has described the Kraft bid as uncompelling but in interviews has signaled support for a possible tie-up with Hershey saying the US chocolate maker would make a better cultural fit than Kraft.

A Kraft takeover would put a British icon and corporate symbol of industry and philanthropy into US hands.

It would create the world's biggest confectionery group ahead of privately owned Mars-Wrigley, bringing Cadbury Dairy Milk chocolate and Trident gum together with Kraft's Milka and Toblerone chocolate as well as its Velveeta cheese, Oreo cookies and Maxwell House coffee.

Cadbury is due to give a fourth-quarter trading update on December 15 and may combine this with its official defense document and give longer-term targets especially on margins. It currently aims to grow annual underlying sales by 4 to 6 percent and achieve “good” mid-teen percentage operating margins by 2011. (Reuters)