Up to 14 per cent of  Cadbury's shares are estimated to be controlled by hedge funds that are betting  that Krafty will increase its $16.2bn  offer for the UK confectioner, this increase the probability that its hostile bid will succeed.

Brokers predict that towards the end of the bid battle, so-called merger arbitrageurs could own more than a quarter of Cadbury’s stock, potentially shifting the outcome of the deal in Kraft’s favour.

These funds aim to profit from the spread between a target company’s share price after a takeover announcement and the closing price at completion of the deal. During a takeover the stock of the acquiring company usually falls, while the stock of the target company rises. In a typical all-share transaction, a mergers and acquisitions fund will buy shares in the target company and sell or short shares in the acquirer.

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