Large Cadbury investors are worried Chief Executive Todd Stitzer may overplay his hand in fending off Kraft's $10 billion offer, with no white knight in sight to spark a bidding war.
The U.S. firm's current 745 pence-per share offer was unacceptable, shareholders contacted by Reuters said, but a bid of more than 900 pence mentioned by analysts seemed unlikely because of the lack of any rival bidders.
It's a bit dangerous to get too greedy because they haven't got any competitive tension and there is a risk that they fail if they get too aggressive, said one UK-based top 25 investor in Cadbury, who declined to be named.
No-one is going to accept the current bid and we believe Kraft will pay more -- I am not sure that Kraft would want to pay that much (900 pence). Above 8 pounds would be the killing zone, he said.
Smaller Kraft shareholders said they expected the company to raise its offer, and that a 10-15 percent increase would be acceptable, raising the bid to around 850 pence.
Stitzer spent Thursday telling a fair trade retail conference about the principled capitalism he feared was at risk from over-leveraged dealmakers, according to media reports, though he did not refer directly to Kraft.
He also harked back to Cadbury's heritage: the company was founded by a family of Quakers who wanted to wean people away from alcohol and make them drink chocolate instead.
The robust public stance came after Stitzer detailed potential benefits from a takeover, with his comments leading to some speculation that Cadbury would see a price of 900 pence as fair and that it was leaving the door ajar to Kraft.
A Cadbury spokesman said after Stitzer's comments that they were theoretical and did not signal a shift in the company's position.
Cadbury shares traded up 0.5 percent at 798 pence by 1241 GMT, outpacing a 0.2-percent rise in the FTSE 100. The shares were at 568 pence before the offer was made.
A UK-based top 35 investor in Cadbury said: The worry for us is that they will overplay their hand and completely scupper a bid and then we will be left with a share price that is rather too high for the ordinary operating business.
Cadbury is clearly proud of its heritage -- its telephone hold music is a nostalgic compendium of advertising jingles -- but its ownership has undergone a huge shift over the decades.
It was a family firm for more than a century, and family members still hold stakes, but its main investors are now the large institutions which dominate the corporate landscape, and with an increasingly North American flavor.
Data from Thomson Reuters show the confectioner is largely split between 153 UK investors and 134 from the United States, equating to percentage holdings of 40.5 and 22.6 respectively.
The top investor, according to the latest available data, is the UK arm of California-based Franklin Templeton, while the fund management arm of British insurance giant Legal & General is in second spot.
Franklin and many other top 10 shareholders declined to comment, while Legal and General IM has said the Kraft offer materially undervalues Cadbury.
Large chunks of Cadbury stock is held by passive index funds which have been known to play a sleeping role on past votes. However, spokespeople from some of those managers stress any Kraft/Cadbury votes will be treated as if an active holding.
Smaller Kraft shareholders agreed that Kraft would need to spend more to make a deal happen.
Rarely do one of these mergers happen without an initial bid that is lower than what they are ultimately willing to pay, said Colin Symons from Symons Capital, who holds Kraft stock.
A 10-15 percent raise in offer is what I would guess.
John Dowling, portfolio manager for Golub Group's GGEFX fund agreed that the bid would have be raised, and said that the potential revenue synergies were highly compelling.
Another smaller Kraft shareholder, who requested anonymity, agreed an about 10 percent rise looked likely. He also noted many European Cadbury shareholders do not want to own U.S. shares, and would want to see any sweetened offer from Kraft in the form of cash.
Kraft's ability to offer cash is constrained by its need to keep a solid credit rating.
We would like to see this deal happen, but we would not want to see Kraft do anything that would affect its credit rating, said the small Kraft shareholder.
(Additional reporting by Joel Dimmock, Editing by Sitaraman Shankar)