U.S.-based Kraft Foods Inc
Cadbury had steadfastly rejected Kraft's previous 10.5 billion pound hostile takeover bid since a brief conversation between the two sides in late August.
But with a January 19 deadline looming to raise its bid, Kraft Chief Executive Irene Rosenfeld held talks late into the night in central London with Cadbury Chairman Roger Carr and CEO Todd Stitzer. An agreement was expected to be announced early on Tuesday, sources familiar with the situation told Reuters.
The two sides were discussing a deal valued as high as 850 pence a share for Cadbury, compared to Kraft's current offer of 769p a share, sources said.
Most, or possibly all, of the increase would be in cash to appease Kraft shareholders, such as Warren Buffett, who opposed issuing more shares to purchase Cadbury.
One source said Kraft had offered Carr the role of chairman of a combined company and Stitzer the opportunity to remain at the helm of Cadbury, but that both executives had yet to decide on accepting.
Talks are at an advanced stage, and it will be very difficult for Cadbury not to recommend a deal close to 850 pence, said a second source.
Rosenfeld had gone door-to-door in London to visit Cadbury investors late last week, with many shareholders saying she mostly listened to their arguments for a higher price. Direct talks with Cadbury began after she took stock of their comments, sources said.
Kraft had been expected to raise its bid by the deadline set by the UK Takeover Panel and many Cadbury investors said they would not contemplate an offer below 800p to 850p per share. Earlier on Monday, major Cadbury shareholder Standard Life
Both Kraft and Cadbury declined to comment.
AN END TO INDEPENDENCE
Cadbury, the maker of Dairy Milk chocolate beloved by many in the UK as a national treat, had said it sought to remain on its own as long as Kraft's offer undervalued its businesses.
A deal with the U.S. food group, known for its Oreo cookie and Velveeta cheese brands, would mark the end of independence for a British institution built 186 years ago when John Cadbury opened a shop in Birmingham selling tea and cocoa.
I identify them with plastic cheese on hamburgers, said Felicity Loudon, a descendant of Cadbury's founding family, when asked about Kraft in November.
Unite, Britain's largest labor union, has also opposed a takeover by Kraft, saying the U.S. company would need to lay off tens of thousands of workers to achieve its savings targets in a deal.
Cadbury's leadership had also encouraged talks with potential rival bidders, particularly Hershey Co
Hershey had been preparing a bid for Cadbury to top Kraft, but won't compete at this price level, a source familiar with the matter said on Monday. Hershey was surprised by news of a possible friendly deal, the source said.
Hershey officials declined comment.
Rosenfeld made her most ambitious move yet in pursuing Cadbury, aiming to fold its faster-growing confectionery business and exposure to emerging markets into Kraft's slower moving businesses. Combined the companies would top Mars-Wrigley as the top confectionery group.
Since Kraft made its offer for Cadbury public in early September, Rosenfeld played a steady heady hand and kept details of the company's strategy under tight secrecy.
She initially approached Cadbury's Carr in London in August during a 20-minute meeting, after which she faxed the terms of an offer that was quickly rejected. Until the current talks, Rosenfeld refused to raise the overall bid and had only offered Cadbury investors a cash sweetener.
Earlier this month, top shareholder Buffett came out in opposition to Kraft's request to issue up to 370 million shares to fund the acquisition. [ID:nLDE6040C0] But he left the door open to changing that stance, and Kraft's use of cash in a raised offer could be convincing enough.
Industry analysts said Kraft could finance its raised offer from the sale of its frozen pizza business and from the $9.2 billion it has secured from lenders.
(Reporting by Brad Dorfman and David Jones; Additional reporting by Jessica Hall and Victoria Howley; Writing by Michele Gershberg, editing by Martin Golan and Diane Craft)