Cadbury made its final case against Kraft Foods' hostile takeover offer, delivering higher margins and promising a raised dividend, but the U.S. food group was still expected to succeed by slightly improving its offer.

Further strengthening Kraft's position, Italy's Ferrero has decided not to bid for Cadbury, Italian news agency ANSA said. That would further isolate another potential suitor Hershey , which has struggled over whether to make a rival offer.

In a final defense document, the Dairy Milk chocolate and Trident gum maker said Kraft's derisory offer of 10.5 billion pounds ($17 billion) valued it below that of any comparable deal in the sector.

Our shareholders are very clear, our independent stand-alone value is much preferred to the bid which is on the table. We do have good support, Cadbury Chief Executive Todd Stitzer told Reuters in an interview.

Kraft has until January 19 to raise its cash and stock bid, now worth about 762 pence per Cadbury share. Analysts and some Cadbury investors have said that an offer of 800p and above would be hard to resist.

While we believe that Cadbury will end up being acquired by Kraft, the current offer is inadequate, said analyst Martin Dolan at brokerage Execution. We remain holders with a (share) price target of 8 pounds, he added.

Martin Deboo, analyst at brokerage Investec Securities, said that Kraft will need to come up with an offer north of 8 pounds and with a significantly enhanced cash component to take over Cadbury.

Cadbury shares closed off 0.5 percent at 775.6p on Tuesday. Kraft's shares were up 19 cents at $28.99, meaning that Cadbury shares were trading at a 1.5 percent premium to the current value of Kraft's offer.

Kraft may release some details of its own fourth-quarter results in the next week to bolster its case, analysts said. It could also raise the cash portion of its bid a second time, even before making what is expected to be a raised best and final bid next week, they said.

If they know enough that they are going to beat estimates, they would probably try to put something out, Edward Jones analyst Matt Arnold said.


Cadbury reported a 5 percent rise in 2009 underlying sales, with the second half accelerating to 6 percent. It achieved an operating margin of 13.5 percent, against a forecast of 13.3 percent, and promised a 10 percent rise in the 2009 dividend.

Our performance in 2009 was outstanding. We generated good revenue growth despite the weakest economic conditions in 80 years, Stitzer said.

Cadbury Chairman Roger Carr said the choice for shareholders was between the excellent track record of Cadbury's management and Kraft's leadership under CEO Irene Rosenfeld, which he said had failed to deliver on its promises.

Stitzer and Carr have questioned Rosenfeld's ability to raise her bid after Kraft's top shareholder Warren Buffett came out in opposition to a share issue to fund the deal.

Kraft called Cadbury's final defense underwhelming and said the company ducked the issue of 2010 profitability.

We continue to believe that the value certainty and upside potential of our offer remains the best option for Cadbury's shareholders, said a Kraft spokeswoman in a statement.

Cadbury said Kraft's offer values it at a lowly 12 times 2009 core EBITDA profits against comparable transactions at 14.3 to 18.5 times EBITDA. It noted that most of the offer is in Kraft shares which have underperformed rivals by 42 percent since Kraft's flotation in June 2001.

Cadbury also said some of its shareholders have turned down an offer by Kraft to meet with Rosenfeld in London later this week. Carr said he was amazed it had taken Kraft so long to make such a direct approach.

One top 30 Cadbury investor told Reuters: Companies do their talking partly by picking their phone up and partly by their actions. At the moment, Kraft (representatives) don't seem to have anything very interesting to say to us.

Cadbury can still give further details on 2009 results after the UK stock market closes on January 14 at around 1630 GMT. Its investors have until February 2 to respond to Kraft's offer.

Last week, Swiss food group Nestle ruled itself out of a Cadbury auction.

A Hershey spokesman on Tuesday declined to comment on Cadbury, citing company policy.

($1=.6209 pounds)

(Reporting by David Jones, additional reporting by Raji Menon and Brad Dorfman; Editing by Michele Gershberg, Phil Berlowitz)