Cadbury's shares edged up by early afternoon on Monday as the clock ticked toward a 1700 GMT deadline for Kraft Foods to either make a formal takeover bid for the British confectionery group or walk away.
Cadbury is the world's second-largest confectionery group, while Kraft is number five, with brands such as Toblerone, Cote D'Or, Terry's and Suchard, and bringing them together would pip privately owned Mars-Wrigley to the global top spot.
The North American food giant is expected to formalize its existing offer for Cadbury or increase it before the deadline passes, triggering a bid battle that could last for months if the formal offer is unacceptable to the British group's board.
We see little probability in Kraft ratifying its offer and assign greater probability to a higher offer with a much larger cash component, said JP Morgan analyst Pablo Zuanic, who is looking for a final bid of 780 pence, 75 percent of it in cash.
Cadbury rejected Kraft's initial approach, which was valued at 745p a share two months ago, with only 40 percent in cash, and its shareholders have indicated a formal bid will now have to be worth above 800p a share to be considered seriously.
Kraft's Chief Executive Irene Rosenfeld's insistence she will not overpay for Cadbury and the lack of a rival bidder has seen Cadbury shares slip from a high of 808.95p over the last 2-1/2 weeks.
Nomura analyst Alex Smith says Cadbury investors will win if they do, win if they don't. He expects shareholders would get around 820p a share from a Kraft bid but also puts a stand-alone value on Cadbury of 780p, saying management has recently given a more convincing picture of its potential.
A bid for the maker of Dairy Milk chocolate and Trident chewing gum from the owner of Oreo cookies and Velveeta cheese is expected after the UK Takeover Panel's put-up or shut-up ruling said Kraft had to make a bid by 1700 GMT on Monday or walk away for six months.
Kraft made its initial cash and shares approach for Cadbury at 745p a share, or 10.2 billion pounds ($17 billion), in early September, but the fall in Kraft's share price and the dollar exchange rate make the offer currently worth 713p, while Cadbury shares were trading up 1.4 percent at 768p by 1235 GMT.
Kraft's initial approach was worth 300p in cash and 0.2589 new Kraft shares for each Cadbury share. We do not think that Kraft will walk away, but we suspect that recent updates may limit the scope for a significantly higher offer, said Jeremy Batstone-Carr at Charles Stanley.
If Kraft makes a formal bid, it is allowed 28 days to post its official offer document to Cadbury shareholders, which will then trigger a 60-day bid timetable under UK takeover rules.
(Editing by Greg Mahlich/Will Waterman)