Kraft faces tougher Cadbury pitch after results

Kraft's results, released after the market close, reinforce the view it will rubber stamp an original offer and turn the bid hostile, before using a $9 billion bridge loan to sweeten the cash element of its offer at a later date, they added.

Pablo Zuanic at broker JP Morgan said Kraft's results were likely to cap any improvement in its offer.

"Re: the Kraft bid, we now assume a lower price on lack of competing bids, lower synergy assumptions and our growing belief Kraft could walk away... We doubt Kraft will go over 780 pence," he added.

Kraft launched a cash-and-shares offer for the British confectionery group in early September which Cadbury promptly rejected, and by late September the UK Takeover Panel ruled that Kraft had until November 9 to make a formal binding bid for Cadbury.

The initial approach was priced at 745p a Cadbury share, or 10.2 billion pounds ($16.8 billion), but the fall in Kraft shares make it presently worth around 733p, against a current Cadbury share price of around 776p.

VALUE MAY DIP

The value of Kraft's offer - some 60 percent in new Kraft shares - is likely to dip further when Kraft shares open later on Wednesday. Kraft shares were off 2.7 percent at 18.23 euros in early European trading.

For current values based on the latest share prices, click on.

One Cadbury top-ten investor has indicated to Reuters that a Kraft bid of 820p "certainly stacks up" and would be looked at seriously, while some brokers such as Credit Suisse still see Kraft having to pay 850p to win Cadbury.

"We believe Kraft and Cadbury are still far apart on valuation, so that offer when it comes will be hostile," said analyst Graham Jones at broker Panmure Gordon.

He added that Kraft will be able to raise the cash level of its bid to 400p a Cadbury share from 300p after raising $9 billion of bridge finance, but its lower share price is unlikely to help its cause.

Although Kraft beat earnings expectations, it reported weaker than expected third-quarter revenue and cut its full-year 2009 sales growth forecast to about 2 percent, from 3 percent previously, pushing its shares down in after-hours trading.

Panmure's Jones point out Kraft's results disappointed on sales growth for the fourth quarter in a row, with underlying sales only up 0.5 percent compared to Cadbury's impressive 7 percent third-quarter growth, as reported last month.

Other analysts said this reflected the description of Kraft by Cadbury Chairman Roger Carr as a "low growth conglomerate business model," in a September letter to Kraft's CEO Irene Rosenfeld emphasizing why Cadbury was rejecting Kraft approach.

($1=.6071 Pound)

(Reporting by David Jones; editing by Simon Jessop)