Kraft played down speculation on Tuesday that it would be prepared to raise its offer for Cadbury PLC , after the British chocolate company rejected its 10.2 billion pound ($16.7 billion) offer.

Cadbury shares have climbed 38 percent in the past two days on talk that the American packaged food company would be prepared to increase its bid for Cadbury, and that there could be a bidding war with rivals such as Hershey Co or Nestle .

Kraft's Chief Executive Irene Rosenfeld told analysts on Tuesday the company has been and will continue to be disciplined in its attempt to acquire Cadbury.

Another Kraft executive, Michael Osanloo, said in a statement, Cadbury is worth what someone is willing to pay for it -- nothing more.

While a number of analysts expect Kraft to raise its bid to get the deal done, the company does not have that much room to maneuver without threatening its balance sheet or risking its investment grade credit rating.

It is already testing the limits of credit rating agencies with its current bid, under which Kraft would pay more than $6.7 billion in cash and the remainder in stock.

Craig Hutson, senior investment grade analyst at Gimme Credit, said a $7 billion loan would bring Kraft's debt to more than 4 times its projected EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization).

That's really pushing the envelope in terms of investment grade rating, he said. Still, he noted that Kraft could have some leeway with ratings agencies because of its large, well-known brand.

Moody's Investors Service said on Tuesday that it may cut Kraft's debt rating, but that any downgrade would likely be limited to one notch, which would keep Kraft in investment-grade territory.


Some analysts wondered if Kraft's offer was already sweet enough.

The price that it may take to seal the deal will limit the financial return for Kraft shareholders for some time, even at the very first offer price, said Edward Jones analyst Matt Arnold. Every time you increase that price you are pushing out when this becomes a profitable deal, and you're increasing the risk of failing to ever really get a decent return on your investment.

This was underscored by a decline in Kraft's shares by almost 6 percent to $26.45, and an increase in the cost of insuring Kraft's debt.

Spreads on Kraft's 6.125 percent notes due in 2018 widened by 25 basis points to 165 basis points over Treasuries, according to MarketAxess.

With the decline in Kraft's share price, the deal would currently be valued at about 9.77 billion pounds ($16.12 billion).

There is also a chance of counterbidders, most likely Hershey Co and Switzerland's Nestle AG . Some analysts said they could make a joint offer for Cadbury, then split the business to get around any anti-trust concerns.

Hershey is being advised by U.S. bank JPMorgan on a possible strategy regarding Cadbury, a source familiar with the situation said on Tuesday.

In a joint-bid scenario, Nestle is seen as taking Cadbury's gum while Hershey would take the chocolate. Such an acquisition would expand the U.S.-focused company internationally.

Hershey and JPMorgan declined comment.

Absent a counterbid, the pressure may end up squarely on Cadbury's management to get a deal done.

We expect Cadbury's management to mount an aggressive defense, but confess to seeing few options on the table as a standalone company that would get the share price to 745p, let alone if there were a higher offer, said Warren Ackerman at Evolution Securities.

The company's advisors are playing a waiting game to see if someone else will bid, said Evan Stewart, an antitrust expert with Zuckerman Spaeder LLP.

The problem with this is it sort of puts (Cadbury) at low tide on a beach, like a whale, Stewart said. Either somebody is going to help it back in the water or the natives are going to carve it up.

(Reporting by Diane Bartz in Washington, Brad Dorfman in Chicago, Megan Davies, Michael Erman and Martinne Geller in New York, Alexander Smith in London and David Jones in Zurich)