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Kraft May Lift Offer on Cadbury Stock Rise

By Jeroen Molenaar

(Bloomberg) — Kraft Foods Inc. (KFT) will probably extend its 10.5 billion-pound ($16.9 billion) hostile bid for Cadbury Plc (CBY), analysts said, as the U.K. chocolate maker's shares trade above the offer on expectations of a higher price.

Cadbury shareholders must tender their stock by Jan. 5 at 1 p.m. London time, according to Kraft's Dec. 4 offer. The world's second-largest foodmaker can raise its bid until Jan. 19, the deadline set by the U.K. Takeover Panel. Cadbury shares are trading 9.4 percent above Kraft's current offer.

"The market is clearly saying the current bid is not going to happen," said David Crawford, who doesn't plan to this week tender the 650,000 Cadbury shares he holds at Octopus Investment Ltd., which has about 1.5 billion pounds under management.

Investors are betting the U.S. maker of Oreo cookies will raise its bid, or another suitor will step in and drive up the price. Cadbury has rebuffed Kraft, raised its own sales and profitability targets and said it has received interest from others. Ferrero SpA and Hershey Co. have both said they are considering their options regarding Cadbury.

Kraft should wait until the Jan. 19 deadline, as other acquirers have done in similar situations, said Tai Mey Lim, a risk arbitrage and special situations analyst at Icap Plc.

Michael Mitchell, a spokesman for Kraft, declined to comment. Trevor Datson, a spokesman for Cadbury, declined to comment on whether Kraft would extend its offer.

850 Pence

Cadbury climbed as much as 6.5 pence to 804 pence in London trading, the stock's highest intraday price since Dec. 4, and was up 5.5 pence to 803 pence as of 11:47 a.m. Kraft's offer values Cadbury at about 733 pence a share. Crawford, who bought the Cadbury shares after Kraft's initial approach, is waiting for an offer at 825 pence a share or more.

Unless a third party makes a counterbid, Kraft may increase its offer to as much as 850 pence, said Icap's Lim. Northfield, Illinois-based Kraft has said its offer represents the best value to Cadbury investors and that it will be "disciplined" in its approach.

Investors are "holding out for a higher price, but we think Cadbury shareholders may ultimately accept an offer rather than risk the shares trading down," said Erin Swanson, an analyst with Morningstar Inc. in Chicago.

Cadbury, which also makes Trident gum, said on Dec. 14 that the operating margin, its most important performance measure in a five-year turnaround plan, will widen to between 16 percent and 18 percent by the end of 2013, and increased its sales forecast for the same period. Cadbury Chairman Roger Carr said the same day that Kraft's offer is "contemptuous" of the confectioner's inherent value.

Still, Cadbury will be bought eventually, Crawford said.

"I'm betting on a takeover," said the investor. "I think there's a 70 percent chance Cadbury will be bought. I'm not bothered whether that comes from Kraft or another bidder."

To contact the reporter on this story: Jeroen Molenaar in Amsterdam

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