summarized from  an article fromThe Times 02 November 2009 written by Helen Power

Kraft is set to make a hostile bid for Cadbury within a week. Under Takeover Panel rules, the American food group must bid for the British maker of Creme Eggs, Dairy Milk and liquorice allsorts by 5pm next Monday or walk away for six months.

Should Kraft make a hostile bid, it is likely that the outcome will not be decided until well into next year.

The American food maker offered 745p a share for its target in September, but was rebuffed by Cadbury, which is advised by UBS, Goldman Sachs and Morgan Stanley.

In theory, Kraft has three options before next Monday’s deadline: to launch a hostile offer; to make a higher informal bid for the business in an attempt to engage Cadbury’s management in talks; or to walk away from its target. Analysts believe the first option is by far the most likely.

Bank of America Merrill Lynch issued a note last week, saying that there was a 75 per cent chance that Kraft would go hostile with a bid of 780p, a modest premium to its earlier offer. At this level, Cadbury’s board would probably feel that it could reject the revised bid in a move that could push the takeover battle beyond Christmas.

Cadbury’s shares, which have been drifting lower during the past two weeks amid fears that Kraft will struggle to improve its terms, closed at 770p last week. It is likely that investors would push Todd Stitzer, the company’s chief executive, and Roger Carr, its chairman, to talk to Irene Rosenfeld, Kraft’s chief executive, if the American group offered between 820p and 850p a share.

Kraft and Cadbury have been locked in talks with the British confectioner’s shareholders over the past fortnight to establish their views on a deal. Cadbury’s shareholders have started to put a price on a deal with Kraft, with one top shareholder saying last week that it would consider backing a merger at 820p a share, although others are understood to be reluctant to accept Kraft shares — which have underperformed the American market in recent years — as part of a deal.

read full story here