Kraft Foods has vowed to maintain discipline in its pursuit of British chocolatier Cadbury , suggesting the U.S. group will resist raising the level of its hostile approach.
In a rebuttal of Monday's aggressive defense statement from Cadbury, the U.S. food group on Tuesday claimed a combination of the companies would deliver substantially more value than Cadbury could achieve on its own.
Kraft's approach has been pitched at 729 pence per share but many analysts believe it will need to pay 820 to 850 pence in order to be successful.
Kraft will continue to maintain a disciplined approach with respect to the acquisition of Cadbury in line with the criteria outlined in our offer documentation, said Kraft Foods Chairman and CEO Irene Rosenfeld in a statement.
Shares in Cadbury were down 0.88 percent to 788 pence at 0855 GMT (3:55 a.m. EST), well above the level of Kraft's approach, suggesting the market believes a bidding war could escalate.
We think Kraft will need to raise its offer toward 820 pence even if there is no counter bid, said Evolution Securities analyst Warren Ackerman.
The emergence of credible counter bidders for Cadbury could mean that Kraft has to materially increase its bid to be successful. We think an 850 pence bid with a 400 pence cash element could satisfy the criteria Kraft has laid out for remaining a disciplined buyer, he added.
On Monday, Cadbury teased shareholders with the prospect of rival bids and promised bigger dividends and stronger growth as it again knocked back Kraft's hostile 10 billion pound ($16.3 billion) offer.
America's Hershey and Italy's Ferrero have both indicated they are contemplating bids. Swiss food giant Nestle is also viewed by analysts as a potential suitor.
Responding to Cadbury's defense document, Kraft urged shareholders to question whether Cadbury can hit its revenue growth and margin targets without further spending on restructuring, and questioned how much free cash flow the group expects to generate in 2010.
We have heard nothing from Cadbury that surprises us. Cadbury's defense document only reinforces our belief that there is a compelling strategic and financial rationale to combining these two companies and that doing so would be in the best interest of both companies' shareholders, said Rosenfeld.
Kraft said it believes its current trading and prospects are strong but noted that its share price performance had been adversely affected since it made its offer approach for Dairy Milk chocolate maker Cadbury on September 7.
It said it expects these factors to dissipate once there is clarity over the outcome of its approach.
(Reporting by Matt Scuffham; Editing by Victoria Bryan and Hans Peters)