The deal would create the world's largest confectionery group ahead of privately owned Mars-Wrigley.
The boards of Kraft Foods Inc and Cadbury Plc confirm that they are finalizing the terms of a recommended offer for Cadbury Plc. A further announcement will be made shortly, Kraft said in a statement on Tuesday.
Cadbury shares hit a record high of 835 pence in early trade and were up 3.2 percent 833p by 0815 GMT (3:15 a.m. EST).
Kraft's CEO Irene Rosenfeld injected more cash into her bid and raised the overall value to persuade Cadbury's Chairman Roger Carr and his board to recommend her cash and shares hostile offer, worth around 840-850p, after a fiercely fought bid battle, said sources close to the situation.
Cadbury had steadfastly rejected Kraft's previous 10.5 billion pound takeover bid since a brief meeting between Rosenfeld and Carr late August, but Kraft came back on Monday with its higher offer prompting high level talks into the night.
The recommended offer is likely to include some or all of Cadbury's final 2009 dividend of 12.3p which has been announced but not yet paid to Cadbury shareholders, the sources said.
The new bid will consists of over 500p of cash and the rest in new of Kraft shares, compared to Kraft's original offer of 300p and 0.2589 new Kraft shares which valued Cadbury shares back in early September when the deal was first published at 745p, they added.
(Reporting by David Jones; editing by Dan Lalor and Sitaraman Shankar)