Cadbury shares dipped below Kraft Foods' 10.6 billion-pound ($17 billion) bid price for the first time on Thursday as prospects of a rival bid receded and analysts reckoned Kraft now needed only to slightly sweeten its offer to win.
Kraft will not have to offer much more than 800 pence a share for Cadbury, analysts said, after shares in the British confectioner hit a day's low of 766-1/2p, compared with the current value of 771p for Kraft's cash and shares bid. Cadbury shares were back up 0.6 percent at 776p by 1220 GMT (7:20 a.m. EST).
We continue to believe Kraft will have to come up with a bid of over 800p for Cadbury to fold, said Investec Securities analyst Martin Deboo.
Cadbury shareholders still saw Kraft's current bid as unacceptable but were more cautious in looking for some of the heady prices of over 850p mentioned previously.
Anything under 800 pence will be horrible. I don't think Kraft will walk away - I think they will put their cards on the table and see what happens, said one top 30 Cadbury investor.
Reports of a possible counterbid from Hershey Co were largely dismissed after Cadbury said it was not looking for a white knight bidder and analysts continued to doubt how Hershey could finance a deal.
Kraft's chances of winning the game have been boosted in recent days by a rise in its own share price, which has in turn raised the value of its current cash and shares offer.
Kraft raised the cash element of its bid for Cadbury on Tuesday without changing the price by making a corresponding cut in the paper element, but within hours Kraft's largest investor Warren Buffett warned the U.S. group not to overpay and issue a large number of new Kraft shares.
Kraft shares have been boosted by Buffett's warning on overpaying and on the prospects that the deal could actually fail. They closed on Wednesday at $28.97, above the $28.10 they fetched just before the bid was announced in early September.
Kraft CEO Irene Rosenfeld has taken a hard-noised approach to Cadbury, refusing to increase the bid, and her chances of success have risen despite the public spat with Buffett.
She agreed a deal to sell a North American pizza division to Nestle to buy off the Swiss giant this week, and when Nestle ruled itself out of a Cadbury bid it lessened the chance of Hershey bidding without Nestle's financial muscle.
If there is not a counter bidder, then we see Kraft having to sweeten its bid, but only up to around 800p, said another industry analyst.
The U.S. food group said on Wednesday it had a 1.52 percent take-up from Cadbury shareholders, but the offer will remain open until February 2, and many Cadbury investors still hope Kraft will improve its bid terms by the deadline of January 19.
Cadbury outlined the timing for the publication of its final defense documents against the Kraft bid on Thursday, saying it will publish new financial information on January 12 such as forecasts of its 2009 results and outlook for 2010.
The group has also been allowed by the UK Takeover Panel to give more details of its 2009 performance after the UK stock market has closed at 1630 GMT on January 14.
(Additional reporting by Raji Menon, editing by Greg Mahlich/Will Waterman)