U.S. food giant Kraft
Kraft's 10.2 billion pound ($17 billion) bid earlier this week was rejected by the British confectioner, and the value of the cash and shares bid has slipped as the U.S. food group's shares have eased and the dollar has weakened against the pound.
The bid launched Monday was valued at 745 pence a Cadbury share then, but has slipped to 707p as the dollar has eased as global investors have moved into other currencies and into share markets on the hopes of a global recovery.
Cadbury shares closed off 0.7 percent at 775-1/2p.
If the stock market recovery is well supported it suggests sterling has potential to move toward $1.68, and we could see a return to the $1.7 high seen in early August, said currency strategist Jeremy Stretch at Rabobank.
Kraft's 745p bid on September 7 was based on the pound trading at $1.6346 and Kraft shares at $28.10, but with the pound around $1.67 and Kraft shares at $26.26 the value has fallen.
Analysts say Kraft will have to offer more to secure a deal, with Warren Ackerman at Evolution Securities saying that if Kraft raises its annual cost synergies cost target then a higher bid of 850p could be justified.
We think Kraft could justify a higher bid by increasing the targeted cost synergies, which look conservative at around 6 percent of Cadbury's sales, Ackerman said.
Kraft has targeted $625 million of annual cost saving, or around 6 percent of Cadbury sales, but Ackerman points out similar deals have achieved higher cost savings, with Kraft targeting 7 percent of Danone's biscuit sales when it was acquired in 2007 and 9 percent of Nabisco sales when purchased in 2000.
However, when Kraft executive Michael Osanloo said on Tuesday that Cadbury is worth what someone is willing to pay for it and nothing more, it suggested to analysts that Kraft will only raise its bid significantly if there is a counterbidder.
The only real possible counter bid is likely to come from Nestle
A possible deal would have the advantage for Cadbury shareholders that it would likely be all cash, but some analysts wonder whether Hershey can afford Cadbury's chocolate and whether Nestle really wants Cadbury's chewing gum.
Kraft's bid is worth 300p in cash and 0.2589 new Kraft shares for each Cadbury share, and if successful would bring Cadbury Dairy Milk chocolate and Trident gum together with Kraft's portfolio of Milka chocolate, Oreo biscuits, Maxwell House coffee and Philadelphia cheese. ($1=.5990 Pound) (Reporting by David Jones; editing by Simon Jessop)